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Umbrella Company Contractors – What Recruiters Need to Know

If your recruitment business engages contractors, there’s a good chance at least some of them are employed by umbrella companies. In this article we’re looking at what recruiters need to know about umbrella company employment, so you can advise your contractors and inform your staff.

What is umbrella company employment?

As you might expect, the clue is in the name. Compliant umbrella companies provide employment for contractors. They then supply their employees’ services to you (as the recruitment agency) for a fee, and they pay the contractor as their employee.

umbrella company supply chainEffectively, the employment of contractors is outsourced to the umbrella company, and your contractual relationship is with the umbrella, rather than the contractor.

What’s in it for your contractors?

By being fully employed, your contractors get the rights, protections and benefits UK law affords to employees. For example, they get access to statutory sick pay, maternity/paternity pay, holiday pay and workplace pensions.

If their employment continues between assignments, the benefits do as well. So, for example, a supply teacher could claim SSP if they fall ill during the school holidays.

Depending on the umbrella company, your contractors may receive other benefits too. For example, employees of Orange Genie Umbrella have access to a whole host of benefits through our employee benefits platform, Orange Genie Companion.

What’s in it for you?

Umbrella company employment allows you as a recruiter to outsource the cost, work and risk of employing contractors to the umbrella company. This means handing payroll, HR and compliance over to specialist experts, instead of working them out for yourself.

This has the interesting side effect of adding said specialist experts to your contacts list, so if you need advice about payroll, legislation changes or compliance you can have an informal chat with an expert at an umbrella company.

The assignment rate

When you engage with an umbrella company, the amount you pay them includes the contractor’s gross pay and their margin and employment costs. This means you pay the umbrella company more than you would pay the contractor if you engaged them directly.

At the same time, you are no longer responsible for paying those employment costs yourself; for example, the umbrella company is responsible for employer’s national insurance and apprenticeship levy, which you would otherwise have to pay.

Why you should use a PSL

So far, we’ve been talking about compliant umbrella companies, and we’ve assumed a certain quality in the service they’ll provide to you and your contractors. However, the term “umbrella company” is not protected, and you may encounter companies who badge themselves as umbrellas and do not work in the way we’ve described.

By providing your contractors with a list of pre-vetted umbrella companies that you know are compliant, competent and experienced you can protect them and your business from involvement with companies who aren’t.

If you have questions or if we can help in any way, please call our expert team on 01296 468483 or email

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