Umbrella companies have been around for many years now and became popular in the year 2000 when the IR35 legislation was first introduced. This was a piece of legislation which looked to stop contractors and freelancers paying themselves in a certain way. Umbrella companies became popular because they were able to offer benefits similar to those enjoyed by contractors prior to the IR35 ruling.

Umbrella companies are sometimes known as service companies and can act as employers to contractors and freelancers who usually work under fixed terms contracts. This approach allows contractors and freelancers to do what they do best while the umbrella company takes care of the administration work.

The value of umbrella companies can be found in the form of financial gain. Contractors and freelancers can take home considerably more pay through the use of umbrella companies. This is because of the expenses format and the reduced costs involved by being employed by a large company. Reputable umbrella companies will ensure that they conform to Inland Revenue guidelines and provide pay calculators. These show how umbrella companies can increase ones take home pay.

The employment status offered by umbrella companies also brings other significant benefits to contractors and freelancers. Firstly they would technically become an employee which means they can enjoy the same rights as a standard employee. These include holiday and sick pay. Contractors and freelancers who have self employed statuses have to provide for these themselves. Umbrella companies will also provide public liability insurance which means the company will represent them if any legal cases are bought against them.

The protection offered by umbrella companies is an attractive prospect to many contractors and freelancers. This is because they remove some of the associated risk of running their own business. People who use umbrella companies although are technically employed still work in their own way and generate their own business. It’s a quality that many business owners consider to be important.

Umbrella companies tend to specialise in particular market places. This is because each market requires a different set of paperwork and administration. Popular sectors include IT, teaching and construction as much of the work is contract based. When looking to use umbrella companies you should consider which market places they operate in. This will help ensure that users get a system that works well with their business model.

Umbrella companies will also appeal to recruitment agencies as they can help reduce costs for these companies. Many recruitment agencies are already using umbrella services and both contractors and the agency can reduce costs and increase profits or take home pay. It is common place for agencies to introduce contractors and freelancers to umbrella company setups. This setup is set to expand over the next few years.

Contractors are often left with the decision as to whether to become a limited company or umbrella company employee. Both approaches offer benefits and personal circumstances often influence people’s decisions. In this article we have explored the value of umbrella companies to contractors and freelancers.

Author Bio: Jason Lowe – Journalist for contractors and thought leader on take home pay calculators

Category: Business
Keywords: umbrella company, contractor, contractors, payment, invoices