What is an overarching contract of employment and why do I need one?

(2 minutes to read)

Any contractor employed through an umbrella company will sign an overarching contract of employment. In essence, this means that the contractor becomes a permanent employee of the umbrella company – it provides continuity of employment during and between different contracts.

This overarching contract of employment allows an umbrella company to pay you as a permanent employee, which is one of the chief benefits of an umbrella company – you’re paid through the PAYE system, with tax and National Insurance taken care of by the umbrella, greatly simplifying the administration surrounding contract work and avoiding the need to submit a tax return if your income is solely through the umbrella company. It also guarantees the contractor the same rights as any other permanent employee – namely sick pay, statutory parental pay, pension and holiday pay.

An overarching contract of employment requires several components to be considered a true contract of employment. It will guarantee a minimum number of hours – usually 336 a year, equivalent to one day a week – and require any shortfall in a year to be paid to the contractor. The contract must also make a provision for holiday pay, in compliance with the Working Time Regulations. Finally, there must be mutuality of obligation, which is a key component of any employee-employer relationship – in plain English, this means that both the umbrella company and the contractor have obligations to each other. The umbrella company’s obligations are to source work and to pay a retainer during periods where work is not available. The employee’s obligation is to accept such work as offered by the employer.

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