Advantages of using an umbrella company
With the rise of the “collaborative economy,” many people prefer to work as freelancers, rather than become employees of a company. This model comes with some vulnerabilities and drawbacks, which is why some contractors choose to partner with an umbrella company. These workers still complete temporary work, often through a staffing agency, but are technically classified as employees of the umbrella company.
What is an umbrella company?
An umbrella company is an intermediate company that employs workers who would normally be independent contractors or temporary agency employees. The umbrella company manages how these freelance workers are compensated by their staffing agencies or end customers. An umbrella company invoices an agency or individual clients for an employee’s work and then pays the employee through Pay As You Earn (PAYE), deducting taxes and social welfare contributions.
To understand the impact of umbrella companies, you will find it useful to consider the options. Without an umbrella company, contractors can independently operate as freelancers or as their own limited partnership. Contractors provide services on a short-term basis to several customers. They are paid in instalments or advance lump sums for their work and it is usually up to them to set apart income taxes and other mandatory contributions.
While some contractors find their own work and manage their own engagements, many contractors are using contracting agencies to assist them with hiring. In these instances, the agencies may be the ones that partner with umbrella companies. Using an umbrella company can decrease the contracting agency’s administrative duties and liability.
Umbrella companies have become increasingly popular in some countries. Some umbrella companies market themselves as international umbrella companies tailored to assist contractors in accepting contracts from multi-country clients and receiving payments in a compliant manner.
Advantages of working under an umbrella company Umbrella companies offer some considerable benefits to both the workers and the companies wishing to hire these workers.
Benefits for employees
Compared to working freelance as a contractor, becoming an employee of an umbrella company has some distinct advantages. The main reason workers choose this option is because they can:
Simplify taxes: A primary reason for choosing this option is because receiving payment as an employee through PAYE is much simpler than calculating your own taxes and paying on your account. It also saves workers from potentially disguised employment if they take advantage of self-employment tax exemptions. Providing benefits: In becoming an employee of an umbrella company, workers may also be able to receive benefits they would not receive as a contractor.
Benefits for the companies
There may also be some advantages for companies that recruit workers from an umbrella company. Some companies may actually prefer to work with umbrella company employees instead of hiring independent contractors or contracting employees directly because this arrangement can help them:
Avoid misclassification of workers: Countries have their own laws about what legally constitutes a contractor-client relationship versus an employee-employer relationship. If you hire someone as a contractor, but the government determines that the contractor should actually be an employee – perhaps because the person ends up working for you exclusively – you could incur fines or legal action. With recent updates to IR35 , employers have more responsibility to ensure that contractors are not misclassified. when you hire workers under an umbrella company, as they have already been classified, you do not have to worry about this issue. Facilitate international labour relations: Companies that want to start hiring internationally may also want to partner with an umbrella company in the country they are interested in. The umbrella company can help you legally hire contractors in another country. However, this arrangement is only designed to be temporary. It will be helpful if you only look at recruiting someone for a particular project or consulting services, but do not plan to work with them long term. In these cases, you may be able to hire workers as contractors directly. Disadvantages of umbrella companies There are also some notable disadvantages that both workers and companies should consider before partnering with an umbrella company.
ERAI TURKIYE, Umbrella company in Turkey
As an umbrella company, at ERAI TURKEY, we process the timesheets we receive from the employee/contractor for the work carried out for the customer, supply the payroll to the employee/contractor, and then bill the customer for the payment. We provide a comprehensive tailored employment solution in Turkey for contractors seeking the best of both worlds – the independence of contracting and the security of traditional employment – from administrative simplicity and compliance with local regulatory requirements to access to employee benefits and risk minimization.
Our umbrella company ERAI TURKEY offers a reliable, easy and completely compatible employment solution for individuals who choose not to work, or who are not allowed to work in their own company.
The customer is actually the company for which the contractor does the work. The customer will frequently choose to use sub-contractors, as this allows them to increase their staff or capabilities temporarily without the burden of statutory requirements associated with permanent employees. The use of contractors also facilitates special expertise and usually offers the benefits of a broader skills set, as the contractor has usually worked with many different companies and organisations during the previous contracts.
ERAI TURKEY can provide an umbrella service in Turkey which is tailored to the unique Turkish market, and which is of a quality and professionalism matching that of competitors who have been working for many years in the most established of international markets.
For the company using the contractor’s services, the umbrella company ERAI TURKEY is capable of facilitating the statutory deductions and payment of taxes applicable in the country where the contractor works, while ensuring that the contractor’s payment is efficiently structured.
For this service, the cost will be arranged according to the customer’s requirements and the scope of the work involved.