What is an umbrella company? How does it work? How can my business benefit from umbrella services? Is partnering up with an umbrella company cost-effective?
As an experienced provider of Umbrella Services, Acvian is here to answer all popular questions about this solution. This comprehensive guide explains the scope of tasks that Umbrella Companies cover, describes the financial and operational benefits of partnering up with one, and touches upon the average pricing policies for Umbrella Services.
What does an umbrella company mean?
An Umbrella Company (also referred to as Umbrella Service or Umbrella Agency) is a type of business entity that acts as a mediator between working individuals and their employers, becoming a legal party to working agreements and taking over administrative and tax-related responsibilities involved in the employment relationship.
The participants of an Umbrella Company arrangement are:
- CLIENT – an organization that requires the services of workers for a limited or extended period on a full-time/freelance/contract basis
- EMPLOYEE (CONTRACTOR) – an individual who agrees to provide services on the aforementioned basis and is remunerated accordingly
- UMBRELLA COMPANY / UMBRELLA AGENCY – an independent entity that facilitates the provision of services by the employee to the client and handles legal, administrative, and tax-related matters within the course of such provision
Though, like Employer of Record (EOR) and Professional Employment Organizations (PEO), Umbrella Companies are a relatively new way of workforce management, this type of employment service is becoming increasingly popular among businesses that operate and hire internationally, collaborate with freelancers/contractors, or seek hassle-free methods of overseas expansion.
What is the difference between an umbrella company and an Employer of Record (EOR)?
Both types of entities provide similar services to client businesses, but unlike an Employer of Record, an Umbrella Company hires workers as independent contractors and does not become their legal employer. Another point is that an Umbrella Company typically focuses on tax and payroll and does not assume responsibilities related to employment contracts and compliance. However, flexible arrangements are possible, and each Umbrella Service/Umbrella Payroll provider defines the scope of responsibilities in a different way.
How does an umbrella company work?
As an employment agency, an Umbrella Company takes care of a client’s relationship with the employee(s) for the duration of the contract/agreement.
Typical and most important steps of collaboration with an Umbrella/Employer of Record (EOR) company include:
1. A company (CLIENT) hires an UMBRELLA SERVICE/EOR PROVIDER. The CLIENT signs a contract with the UMBRELLA/EOR COMPANY that ensures the provision of Umbrella/EOR services.
2. After the contract is signed, the UMBRELLA/EOR COMPANY issues an employment contract, onboards the client’s employee(s), and invoices his/her/their salary(-ies) to the CLIENT.
3. The CLIENT pays a monthly fee to the UMBRELLA/EOR COMPANY for this service.
4. The UMBRELLA/EOR COMPANY administers all tax payments related to the employment relationship: collects taxes and submits them to relevant authorities. Also, it ensures legal compliance of such relationship from the CLIENT’s and the employee’s side alike.
5. The UMBRELLA/EOR COMPANY is responsible for regular payroll calculation and salary pay for the duration of the arrangement. The employee’s net (take-home) salary is calculated after personal income tax deductions, other pre-agreed fees (if applicable), and social contributions (if applicable). Any pre-agreed business expenses are reimbursed.
6. The CLIENT saves financial and administrative resources by delegating payrolling, taxation, compliance, and HR-related tasks to the UMBRELLA or EOR COMPANY.
Umbrella’s are a great option if you’re looking to bring a foreign worker into your company.
These companies can employ expats in any country and make work and residence permits for them. They also help with the administrative aspects of hiring employees, such as getting visas, setting up payroll, and serving as a liaison between the employee and their new employer. The global hiring raised by 145% last year, and will only continue to increase. It’s not worth missing out the prospect.
What are the main benefits of Umbrella Service?
Workforce management via an Umbrella Company has a range of financial, administrative, and legal advantages for client businesses and their employees alike. Among the key benefits are:
- GUARANTEED COMPLIANCE – an Umbrella Company ensures that the relationship between a client business and an employee/contractor fully complies with current labor laws and regulations, and notifies the contractor about any changes/updates to relevant legislation
- SIMPLIFIED ADMINISTRATION AND TAXATION – the client business no longer has to spend internal administrative resources on tasks like payroll and tax arrangements
- EMPLOYEE BENEFITS – the contractor who is hired by the client via Umbrella Services may have access to a range of statutory benefits typically unavailable to self-employed individuals
- RISK MITIGATION – the Umbrella Company typically assumes all but financial risks associated with the employment relationship and manages terminations with the client’s best interest in mind
- TIME AND COST EFFICIENCY – small to medium-sized businesses may not be able to afford international expansion via costly and time-consuming procedures such as establishing a foreign subsidiary. Turning to an Umbrella Company is a shortcut that minimizes the fees and considerably speeds up the employment process in a new country. More information on advantages of an Umbrella Company/Employer of Record over a foreign subsidiary can be found here.
Who should use an Umbrella Company?
While Umbrella Services offer financial and administrative benefits in a variety of situations, the following types of companies and individuals will benefit the most from a partnership with an Umbrella Company:
- small to medium-sized businesses looking for a speedy and cost-efficient solution to expand internationally
- businesses interested in employing foreign individuals and delegating immigration-related tasks to a knowledgable third party
- freelancers/contractors who want to combine flexible arrangements with access to employee benefits and administrative supervision
Umbrella companies can be especially useful for small businesses that want to hire someone from abroad but aren’t sure how to go about it. As mentioned above, some Umbrella Services/EOR providers, including Acvian, offer fully flexible, personalized solutions that fit your specific case best.
How much do Umbrella Services cost?
If you are a business or an individual interested in Umbrella Services, another important question to consider is how much a typical Umbrella Company charges. The overall price of Umbrella Services includes:
- MONTHLY ADMINISTRATION FEE (“Umbrella Margin”) that is charged from a client per employee
- ONE-TIME ONBOARDING FEE per employee
- MONTLY DEPOSIT that includes gross salary, tax deductions and social contributions per employee
One thing to be aware of is that some Umbrella Companies make profit off hidden surcharges such as sign-up and exit fees, add-ons for employee liability/professional indemnity/public liability insurance, and other administrative fees.
Moreover, Umbrella Companies that are officially registered in the EU may charge a 19% VAT (Value Added Tax) depending on the client’s location – this is a legal requirement in all EU member states and is unevitable if you are partnering up with a provider who has a primary legal address in the region.
As of fall 2023, an average price range for Umbrella Services is 399 USD to 699 USD. Due to Acvian’s business structure, our fees exclude VAT even for clients operating in the EU.
Are you looking for qualified Umbrella Services with optimal pricing and no hidden fees? Contact us today for a personalized offer.
So what are the reasons to use an umbrella company?
- Outsourcing Payroll Services: When lacking an internal payroll team, outsourcing to a specialized service provider becomes crucial for efficient payroll management.
- Managing Contractor Expenses: Handling expenses for short-term workers or freelancers can be complex. Engaging a specialist to set up and manage these expenses is highly advisable.
- Regulatory Obligations: For those struggling to stay compliant with legal requirements, seeking assistance from a specialist can streamline and simplify these obligations.
- Time and Cost Savings: Outsourcing offers an opportunity to save both time and costs associated with administrative tasks, making it a viable option for businesses seeking efficiency.
- Employee Benefits: An umbrella service provider can facilitate the provision of employment benefits to contractors or freelancers, offering added value to your workforce.
Are you contemplating the necessity of integrating umbrella payroll services into your company’s operations? Before making a decision, consider these initial inquiries: Do I currently engage short-term contractors or freelancers within my business framework? Am I finding it challenging to effectively manage and comply with regulatory obligations? Is there a desire to streamline administrative tasks and reduce associated costs? Additionally, am I looking to extend employee benefits? A positive response to these questions may indicate that the integration of such services could be beneficial for your company.
How to choose the best Umbrella Service?
It is natural to look for the best price-quality value when selecting an Umbrella Service provider. The client business is only one of the three parties involved in this type of cooperation, so ‘high quality’ is impossible without employee satisfaction, 100% legal compliance, and timely payments from all sides.
We recommend to keep the following things in mind:
- CHEAP doesn’t equal GOOD, which is especially true for Umbella Companies that spend a big chunk of their budget on extensive digital marketing and lure clients in with ‘casual’ means of communication like chats or apps. A reliable provider will be transparent about the expertise of people behind the software, as they will be handling daily tasks for you and addressing possible issues.
- OPERATIONAL SPEED MATTERS. The faster your employees get relocated and onboarded, the faster payroll and tax payments are processed – the smoother internal operations are. Ask potential providers about established processes and client reviews.
- PROFESSIONALISM = CARE. Umbrella Companies manage human resources – sometimes this involves solving human problems and looking for solutions in sensitive situations like unexpected terminations. A reliable provider has your best interests in mind, and facilitates your business expansion, choosing long-term collaboration with a potentially growing team over quick-trim approaches and instant profits off hidden fees.
Acvian as your Umbrella Company
Interested in Umbrella Services delivered by a team with proven expertise, well-established processes, and extensive international presence? Acvian offers an individually crafted and optimally priced solution that can include, but is not limited to:
- legal/administrative consulting and compliance services
- workforce relocation and immigration support in over 120 countries
- speedy onboarding
- tax and payroll
- on-the-spot support to your employees in local language upon relocation
- risk mitigation (all but financial aspects)
All this delivered by a team of professionals with 6+ years of expertise in international HR, and supported by a data security system you can rely on.
Contact us today and expand globally without delay! Book an instant meeting or leave contacts, and we will get in touch as soon as possible.
