Umbrella firms employ the freelancer under the terms of an overarching contract of employment. This requires the umbrella employer to provide full employment rights, and enables workers to undertake a number of temporary assignments, whilst having statutory benefits and continuity of employment. Additional benefits to the worker include having all their tax affairs managed centrally (rather than being responsible for this themselves with every change in contract) and the continuity of employment history can be helpful if the individual is looking to access financial credit.
Umbrella employers benefit the end-hirer or recruitment business (whichever is applicable) by taking responsibility for all of the employment and tax risk on their behalf. This enables the contract to be fulfilled by a temporary worker without permanently increasing the hirer’s headcount.
The umbrella will therefore have a contract in place with the agency or hirer and will invoice them the agreed assignment cost for the work carried out. The umbrella will then pay the worker directly (on a PAYE basis) after retaining monies including their margin, employer tax, employee tax and national insurance contributions.