beach umbrella

What is an umbrella company?

If you’re an agency worker, contractor, or other type of independent worker, then you may have heard of the term ‘umbrella company’. 

But what on earth does an umbrella company do and why should I consider one?

An umbrella employs temporary workers, enabling them to have continuity of employment whilst working for numerous different clients.  This means that the umbrella provides their workers with all of the statutory rights and benefits that permanent employees have, whilst enabling the individual worker to undertake a series of short-term assignments for different end-clients.  

In essence, as an umbrella employee, you have an “umbrella” of employment benefits and rights that you take with you, wherever you work.  

Greater working freedom with added benefits

If you sign up with an umbrella company, you will become an employee of theirs until you’re ready to leave.

As an employee of the umbrella company, you’ll be entitled to 84 statutory rights and benefits of employment as well as the services that the umbrella company says it will provide to you.

Not all umbrella companies are the same, though. If you’re an agency worker or contractor interested in an umbrella, it’s essential you do your research first, to find the right fit for you and your needs.

Just some of the basic duties an umbrella company should provide are:

  • Collecting payments from clients and agencies.
  • Providing you with employment rights such as holiday pay and sick leave.
  • Providing you with HR support.
  • Processing a payslip for you.
  • Making sure you get paid efficiently.
  • Handling matters such as tax payments and national insurance.

and much more besides.  A good umbrella company will also provide you with a named member of staff who is your first point of contact.  This person will guide you through the process and help you with any problems at hand.

Working with an umbrella company is especially useful for agency workers who work on lots of different short-term contracts for their clients, as the umbrella consolidates your earnings into one pay packet  combining all the income from different projects. 

They will also ensure that your consolidated pay is taxed appropriately, and that you don’t under or overpay tax and NICs.

Also, if you frequently change assignments at the request of your agency or client, an umbrella company will help manage the red tape of treating each role change as a ‘new employment’.  You will receive continuity of employment and all accrued employment benefits even when changing to work for a new client.

Be aware that not all “umbrella companies” are what they seem.  Some are actually tax avoidance schemes which offer you increased take-home pay, which is impossible to achieve whilst paying the correct tax and NICs via PAYE.  

Whilst it is tempting to sign up to receiving more take-home pay, it puts you at significant personal financial risk, and HMRC will present you with a very large bill for the unpaid tax.  

You can read more about such schemes here.

Deciding if an umbrella company is right for you

Most importantly, the biggest advantage to joining an umbrella company is giving workers peace of mind

Peace of mind regarding your employment status, your employment continuity when changing assignments, and peace of mind that your tax and NICs are being paid appropriately.

Again, though, it’s worth doing your research before committing to a specific umbrella company, to find out if it really is the right choice for you.

Some contractors prefer to work for themselves on a self-employed basis, but don’t forget this will entail you taking responsibility for your financial affairs – invoicing clients, paying appropriate tax and NICs, and keeping on top of your end of year accounts.  

For more on being self-employed, read here.

Some clients do not engage self-employed workers, so even if you prefer to work for yourself you might find that this is not an option.  One reason is the forthcoming changes to off-payroll legislation, which you can read about here.

We mentioned earlier that some “umbrella” companies might in fact be tax avoidance schemes. 

The simplest way to prevent yourself becoming involved with a scheme is to ensure that all of your earnings are paid via PAYE, and once you have been paid you could also check your record with HMRC to confirm that the necessary tax and NIC payments have actually been made.  


At present, umbrella companies are not subject to any additional regulation other than that to which any other company and/or employer is subject, such as the Companies Act 2006. As a consequence, there is no official regulator of umbrella companies and therefore no official regulator backed accreditation scheme. As a result, a few businesses exist who have looked to fulfil this role by creating their own accreditation schemes.

Umbrellas looking to be accredited by these businesses are required to pay a fee for their compliance testing and membership of the business providing that accreditation.  Assuming they meet the minimum entry criteria, the applicants will be tested against the standards required by the accrediting business.  As a minimum, you should expect any such compliance accreditation to ensure that firms achieving their standards are not in fact disguised remuneration schemes.    

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