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  3. How does an Umbrella Company work?
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  2. General FAQ's
  3. How does an Umbrella Company work?

How does an Umbrella Company work?

An umbrella company employs contractors, giving them the freedom to work on different contract assignments, whilst paying them under PAYE. In this way it offers a simple solution that is fully compliant with IR35.


There are actually no fixed rules on how umbrella companies should work, but most follow a similar process. After signing up, you are able to deliver on contract assignments and get paid like an employee via the umbrella company payroll.

Signing Up

Because you become an ’employee’ of the umbrella company, you need to provide your P45 or complete a starter checklist to sign up. You also need to provide general admin information such as your National Insurance number, bank account and personal details, and confirm your identity with your passport or visa.

Contracts

Once you find a contract role, your PAYE umbrella company will sign a contract with your agency. You will also sign a contract of employment with the umbrella company.

Timesheets and Invoicing

Each week or month you submit your timesheet details to the end hirer and your umbrella company. The umbrella will then submit an invoice to your agency on your behalf. This covers the hours worked during the previous period. The agency will then pay the umbrella for the invoiced sum. (It’s worth noting, that  you should always check with your umbrella how often they make payments. Some make payments the same day they receive funds, others may only pay once per month.)

Payment

The umbrella will pay you directly into your bank account on the pre-agreed date. Employment costs’ (Employers’ NICs and the Apprenticeship Levy) and the umbrella company margin are retained by the company to arrive at your gross pay. The net amount you receive will already have the income tax (PAYE) and Employees’ National Insurance Contributions (NICs) deducted from your gross pay.  

Updated on 17th February 2020

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