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7 min read

What is an Umbrella Company and How Does it Work?

What is an Umbrella Company and How Does it Work?

An umbrella company is an intermediary company that formally employs independent workers, who are then assigned temporarily to client companies. Umbrella company solutions are most popular in the UK.

Contractor Negotiation 101

Leverage the power of an umbrella company to turn freelance hiring into a profit engine.

The complex demands of recruitment, contractor negotiation, and legal compliance can make it challenging for independent businesses to find great talent without exceeding budget. Building a successful contractor workflow requires a thorough knowledge of local, national, and international labor laws. For expert-level management of a contracted workforce, it’s a great business decision to partner with a pro.

Read on to find out how an umbrella company can be an intelligent way for independent businesses to procure an outstanding team while maximizing profits.

How Contractor Negotiation Works

No business is an island. Contractor negotiation is hiring independent workers to support your existing team or perhaps to create it. The process starts with finding and selecting contractors with the right skills and experience for the job. Recruitment is the first and most crucial step of all contractor negotiations—without the right talent, no amount of cost-cutting matters. Ay, rates and contract terms must then be set, which are agreeable to both parties, along with a schedule for work and deliverables. tThemore intangible elements of great contract work involve setting realistic expectations for workload, performance goals, compensation, and building a long-term working relationship.

By understanding contractor negotiation, you can streamline your hiring process and build a team that precisely meets your business needs.

Hiring Headaches, Many Businesses Face

Hiring talent is step one to any successful project. If you can’t locate the right team members, offer an excellent pay and benefits package, onboard workers quickly, and retain them with excellent oversight, your results will be severely impacted. This is a very time-consuming process, requiring subject expertise on market conditions, tax law, local regulations, and so much more. Any one of these issues can stop progress in its tracks.

Some of the most common hiring headaches include:

Limited access to talent pools

Where do I begin my search for contractors? Businesses might come up against roadblocks due to local or national laws, a limited budget to attract the best talent, or a simple inability to know which venues to post opportunities in. Popular online freelancer sites may appear to offer a wealth of talent, but for most businesses, wading through many applicants who may not be qualified is time-consuming and frustrating. With little information to go on, these sites leave many hiring managers settling for sub-par talent or paying more than their business can realistically support over time.

Long and inefficient recruitment

Modern hiring via internal HR departments can drain time and existing staff, with multi-level interview and approval processes.  It’s standard for employers to feel like they are the ones being interviewed, especially when unemployment in critical industries is low and conditions favor job seekers.  With the rise of remote work worldwide, employers must sift through a far larger talent pool and devote more time to video calls, back-and-forth emails, and weeding out inappropriate applicants. When the suitable applicants are located, there is no guarantee that they will accept the job, leading to even more wasted time when job hunters drop out of the process unexpectedly, take another assignment, or ghost an employer they have been interviewing with.

Difficulty in finding the right skillset

Even with the advanced filtering tools of self-service hiring sites, it can still be quite challenging to identify candidates with specific training or certification to perform vital business tasks. The challenge of verifying these skills can be massive.  Not only is it common for hopeful job applicants to pad resumes and put the most flattering spin on their experience possible, but there are also scammers in the mix. Busy business owners or HR departments may not have the time or ability to chase down every claim made in a job application. Still, without targeted recruitment and sophisticated verification systems, employers may not have an accurate picture of the project skills they are acquiring with the hire.  t can feel like taking a shot in the dark, often with enormous consequences for a misstep.

High turnover rates

In a competitive labor market, retaining contract employees can be another challenging aspect of working with freelancers. Any business uses freelance work as a way to audition candidates for longer term positions.  However, contractors who aren’t well-matched and well-negotiated might move on quickly.

These core issues inspire many businesses to seek professional assistance with contractor hiring and negotiations. That’s where an umbrella company comes in—a one-stop-shop that can address recruitment challenges so you don’t have to.

Essential Pay Negotiation Strategies

Do you know what the fair rates are for contractors in your segment? This is a starting point, but employers also must balance compensation that attracts the right talent without overriding project budgets. For this reason, the negotiation process is an important part of profitability.

These basic strategies for pay terms are the baseline for successful contractor hiring:

Doing the research: Market research is the first step in good pay negotiation.  It’s essential to have a deep understanding of what other firms are paying workers for similar jobs, and then an analysis of talent level and availability is needed. Knowing industry pay standards is essential to remaining competitive.

Offering the right incentives: Have you considered the benefits and bonus structures that might attract great talent? Different industries and tasks might structure these in unique ways, such as rewarding good performance, pre-set deliverable benchmarks, or rewards for time commitments. It can be a huge challenge to set incentives for a variety of different workers, tasks, or regions.

Pivoting when necessary: Sometimes, the terms that employers and contractors negotiate are not adequate for changing conditions. Compensation or working terms should not be set in stone. However, businesses may not have the time for complicated back-and-forth with every contractor they wish to hire.

What Does an Umbrella Company Do?

An umbrella company manages every aspect of contractor work for the business that hires them. His might include hiring, compliance, payroll, performance monitoring, and retention programs.  Sometimes referred to as an “employer of record,” the umbrella company can also act as a legal representative for the business, through which all contractor activity must pass.

TOP 4 Umbrella Company Cost Comparison

Umbrella company Monthly Cost
Per employee per month in £UK
Add-On Services
Caroola£40+Accountancy, tax services, company incorporation
Swapp AgencyCustomized PricingFull UK EOR and PEO services
Access FinancialCustomized pricingPayroll, work permits, EOR services
Churchill Knight£48+Accountancy, tax returns, wealth management

Selecting and partnering with an umbrella company can be a crucial way for businesses to reduce their admin costs while simultaneously ensuring the highest caliber of talent and keeping that talent engaged and retained with excellent hiring and negotiation processes. T frees up time and resources for the actual goals and activities of the business.

Services might include managing all logistical payroll issues, assessing local tax requirements, handling payments, and ensuring total legal compliance related to workers and insurance.

Once hiring is complete and work has begun, an umbrella company can continue to provide very valuable support by managing contracts, monitoring performance goals, and resolving any contributes to total organizational efficiency and profitability that transcends hiring.

The Issue of Global Compliance in Hiring

The remote work revolution has resulted in workers and businesses teaming up from locations around the world. W ile this is an incredible development for the diversity of talent options, it also opens up new issues that employers may not be experienced with managing. L cal, national, and global regulations must be considered when hiring, even if a business only transacts in a single region or country.

Navigating very complex legal rules around contract workers can be even more of a hurdle when seeking talent from many different countries, states, or jurisdictions, each with sometimes conflicting guidelines and penalties. Ensuring legality and fairness by geo-based laws is essential to compliance, including visa requirements, safety standards, work hours, and more.

Businesses turn to an umbrella company to handle contractor negotiations to avoid worldwide strict, confusing, or even contradictory legal requirements. The umbrella company’s role is to stay up to date on the latest laws and occupational developments in different areas to protect both the employer and the contract. Compliance must also be thoroughly documented in appropriate ways, demonstrating conditions that satisfy local unions and government agencies. umbrellalla companies specialize in keeping compliance “buttoned up” so “employers do”n’t have to be concerned with the minutiae in any given locale.

Umbrella firms can also lend support in navigating one of the most critical financial considerations of any business: taxes. I  many countries, tax laws can vary by state, county, or business size/categorAs. As with hiring legalities, taxation law can be complicaed and contradictory from place to place. U umbrella companies, experts at finding and implementing tax codes, can save businesses significant penalties that come with even small accounting mistakes. They can also help companieuseof favorable tax laws to increase margins and profits.

How an Umbrella Company Can Transform Hiring

There are several key benefits to using an umbrella company for the contractor hiring process. The e bottom line is fewer, better talent, more profit, and the peace of mind that guaranteed legal compliance brings.

The best talent

Letting an umbrella company handle the legwork involved in seeking and screening contract workers is a substantial competitive advantage. It empowers businesses to connect with the most qualified talent worldwide without devoting massive resources and guesswork.

A fast and efficient hiring workflow

Time is of the essence when staffing. Choosing an umbrella company to handle hiring from start to finish is a shortcut to getting projects up and running quickly and finding the right team members on the first try.

Smooth enrollment

Getting new workers up to speed with expectations, work culture, communications, and task management is essential at the start of a job. T is can be a time-consuming process for businesses, especially when they don’t have dedicatdon’taff or a well-documented roadmap for onboarding. U umbrella companies can manage new worker inflow in a way that best prepares for a successful working relationship quickly.

More time for your business

Every second you’re not spending complicating contractor negotiations is a second you can devote to other parts of your business, freeing up bandwidth to put freelancers to work and earn more for your company today.

graphic showing how umbrella companies work

How to Select the Best Umbrella Company

Working with an umbrella company can dramatically simplify the hassle of hiring contractors. C choosing the best partner for the job is critical. H re are the questions to ask that will help you identify excellent workforce management partners.

What are previous clients saying?

Look for reviews and testimonials that rate an umbrella company’s services ROI. T is always the best starting point for an objective service provider analysis.

Does the company service your business size/category?

Startups have very different staffing needs and contractor expectations than enterprise businesses, each requiring specialized also applied to unique verticals. Ensure the umbrella company has the vision and services that match your unique goals.

How big is the “umbrella” of serv”ces?

Fin”ing talent is just the beginning of the contractor journey.   ke sure you partner with businesses that cover all aspects of hiring and compliance, including recruiting, contract management, admin and payroll, global hiring, and global employment/tax law.

How much time and effort will you save?

Weight the costs of hiring an umbrella agency to oversee your total contractor workflow versus having to train and pay staff members to deal with every detail of workforce management every step of the way. F r smaller businesses with limited workers/resources, umbrella companies can deliver substantial savings, which translate into profits.

Find out how an EOR company can reduce costs and boost profits today

An EOR is a global employment platform that helps businesses streamline hiring and manage every aspect of contractor services.

  • Complete employer-of-record services for all freelance staffing needs
  • Total compliance support for local, national, and global regulations
  • Streamlined payroll management and tax calculation
  • Comprehensive contract generation

Learn more about the best EOR companies for your business case.

Travis is a global business development advisor. He has spent the last 14 years supporting business establishment and development in North America, Southeast Asia, and throughout the world. With multiple degrees from the University of Oregon, Travis currently splits his time between the US, and Bali, Indonesia. At RemotePad, Travis writes about remote work, hiring internationally and PEO/EOR business models.