Guide to Umbrella Companies

Discover how umbrella companies work and if it's the best way for you to operate.

The process of working under an umbrella company is different than contracting through a limited company. Read below to understand the differences between an umbrella company, recruitment agency and end client.

What is an umbrella company?

An umbrella company is a separate company that acts as an employer for contractors working on fixed-term contracts. They also serve as an intermediary between the contractor and their end client or agency. The principle function of an umbrella company is to organise payment for the contractor. To do this they collect the contractor’s earnings from the end client or agency and then pay it onto the contractor after tax and National Insurance Contributions are deducted.

Umbrella company vs limited company: how should you operate as a contractor?

Our limited vs umbrella video highlights the difference between contracting through your own limited company vs working under an umbrella company.

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Looking for an umbrella company?

We understand that having the right support is crucial, whether you're working through your own limited company or under an umbrella. That’s why our sister company, Parasol, is here to help.

Using their years of experience in supporting contractors, they’re well placed to get you up and running and give you the tools to help you throughout your career. 


How does an umbrella company work?

There are a number of steps you will take when you work under an umbrella company:

1. Sign a contract with an umbrella company

The umbrella company will sign a contract with your recruitment agency. You will then sign an employment contract with the umbrella company and become an employee of the umbrella.

2. Submit your timesheet each week

As an umbrella employee, you will be required to submit a timesheet with information about all of the hours you have worked, along with any expenses to claim. Your umbrella company will invoice your agent/client for the work you have done and will receive funds for you from the agency.

3. The umbrella pays your wages

You are paid after tax and National Insurance Contributions are deducted. Your umbrella company will send you a payslip, and your wages will be paid directly into your bank account.

limited or umbrella guide

Limited or umbrella: unsure how to operate?

Limited or umbrella? Find out how best you should operate as a contractor with our downloadable guide.

What’s in the guide?

  • Umbrella & Limited – the differences between the two structures.
  • Advantages & disadvantages – which route is best for you?
  • Rates of take-home pay – how much could you earn?

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