Payroll Umbrella: How it Works
What is a payroll umbrella company?
A payroll umbrella company is a company that employs freelance workers (here referred to as ‘contractors’), who may work on numerous different assignments, at various locations, either through agencies or directly for end-clients. The payroll umbrella company enters into an employment contact with the contractor and a service contract with the agency or end-client.
Working through a payroll umbrella company differs from working through your own limited company (PSC) in that the freelance worker does not own shares in the payroll umbrella company and is one of many such workers employed by the company.
Payroll umbrella company working through Competex Pro is most suited to contractors, consultants, interims and other independent professionals, particularly those caught by IR35 under the Off-Payroll Working rules.
Do I need to use a payroll umbrella company?
- You are a contractor under the ‘supervision, direction or control’ (SDC) of your end-client
- You are contracting for a medium or large-size business in the Private Sector and your end-client has deemed your contract to be inside IR35 (from April 2021)
- You are contracting in the Public Sector and your end-client has deemed your contract to be inside IR35
- You are contracting in the Charity/Not-for-Profit Sector and your end-client has deemed your contract to be inside IR35
How does a payroll umbrella company work?
When you work through a payroll umbrella company, you work as an employee of the company. Your contract of employment is with the payroll umbrella company and not with the end-client or agency.
The terms of your contract of employment are largely in line with the terms of any other contract of employment (e.g. disciplinary, health and safety, etc), but with certain differences to take account of the unusual circumstances of a payroll umbrella company. You negotiate the terms of your contract with the end-client or agency on behalf of the payroll umbrella company, but the resulting contract is between the payroll umbrella company and the end-client or agency.
Having negotiated your fee and any arrangement for the end-client to pay expenses, you need to advise the payroll umbrella company so that this detail can be incorporated into the contract with the end-client or agency and into your salary payment structure.
Once the contract is agreed, arrangements relating to salary and expenses cannot be amended before or during the course of an assignment.