Why Use an Umbrella Company?

If you are an agency or end client, paying contractors can be a complicated function. You want to make sure that your contractors get paid the correct amount on the correct day – failing to do so could cause them financial inconvenience which could easily sour relations. On paper it really should not be a difficult task – multiply the number of hours a contractor has worked over the payment period by their hourly rate, check your arithmetic just to be sure and then either write the cheque or transfer the money between accounts. Really, what could be simpler?

The problem is that your contractor is not the only person being paid – your contractor has to pay tax and National Insurance contributions on the money you pay them, and even though you are not their direct employer, calculating all of that is your job. Suddenly what would otherwise be an arithmetic challenge that most primary school children could handle with ease becomes mired in a quagmire of variable tax codes, tax allowances and serious potential consequences of error.

You can of course keep all of this in house. If you manage the payroll for your in-house staff managing payroll for your contractors is just as straightforward, right?

Well, no. The thing about your staff is that they work for you. You know their annual income and the amount of hours they work, because you pay that income and set those hours. The whole point of a contractor is that they do not work for you. You have no idea about their annual income, whether they have various tax allowances available to them or any financial details of that kind.

You can of course ask them. But think about that for a moment. If you only use one or two contractors and you use them regularly that might work. But if you have a lot of different contractors used at different times for different lengths of time. If you have done any work at all in payroll you understand just how much time working all of that out for a couple of dozen contractors, and how exponentially that workload could increase as you work with more individual contractors.

That is where umbrella payroll services come in. A PAYE Umbrella Payroll Company is, in effect a payroll intermediary which acts as an employer to contractors. The end client pays the umbrella company a fee, the umbrella company then takes care of making sure that the money due to the contractor has the appropriate tax and insurance deducted and sent to the appropriate authorities.

This relieves the end client of the need to explore the individual tax affairs of every independent contractor they work with, while making sure that the contractors’ tax affairs are taken care of. The tax man gets paid, the contractor gets paid, the end client does not need to worry about anything and everyone is compliant with regulation.

There are very few scenarios in the world of tax affairs and payroll where everybody involved wins, but umbrella payroll services really is one of them. So talk to us and find out how we can help – tax regulations rain problems down on everyone, so come and shelter under our umbrella.