What is an umbrella company

Hiring independent contractors abroad? Umbrella companies are one way to manage payments and compliance, but is it the right solution for your business?

An umbrella company is a business that employs independent contractors or freelancers and manages their administrative, legal, and payroll responsibilities. This model is particularly prevalent in countries like the UK and France, where it provides a compliant and streamlined alternative to self-employment or establishing a limited company.

An umbrella company acts as an intermediary between a contractor and their client or recruitment agency. While the contractor delivers services to the client, the umbrella company takes care of invoicing, tax deductions, and employment law compliance. In return, the contractor becomes an employee of the umbrella company and receives a salary—often with statutory benefits—through the umbrella company.

How umbrella companies operate

The typical workflow involves:

1. Contractor engagement: The contractor secures a contract with a client, often facilitated by a recruitment agency.
2. Employment contract: The contractor signs an employment contract with the umbrella company, which becomes their legal employer.
3. Service delivery: The contractor delivers services to the client per the agreed terms.
4. Timesheet submission: The contractor submits timesheets and any allowable business expenses to the umbrella company.
5. Invoicing and payment: The umbrella company invoices the client or agency, receives payment, deducts taxes and fees, and pays the contractor their net salary.

Benefits of using an umbrella company

Working through an umbrella company has advantages for contractors and clients:

For contractors

• Simplified administration: No need to manage invoicing, tax filings, or compliance issues
• Employee benefits: Access to benefits like sick pay, holiday pay, and pension contributions
• Legal compliance: Assistance navigating complex employment laws and regulations

For clients and agencies

• Reduced risk: Mitigates the risk of misclassifying workers and potential legal repercussions
• Streamlined processes: Simplifies the hiring and payment processes for temporary or project-based work
• Compliance assurance: Ensures adherence to tax laws and employment regulations

Umbrella companies vs. Contractor of Record (COR)

Umbrella companies and Contractor of Record (COR) solutions both help businesses manage the complexities of engaging independent workers abroad, but they differ significantly in structure, compliance responsibility, and convenience.

An umbrella company employs the contractor directly and primarily handles payroll services, taxes, and statutory benefits, while leaving compliance risks and onboarding largely to the client. In contrast, a COR fully assumes legal responsibility for contractor engagement, including classification, compliance, contracts, and payments, without the contractor becoming an employee, offering a more comprehensive and lower-risk solution for businesses hiring internationally.

With Deel's Contractor of Record, businesses can onboard, pay, and manage contractors in over 150 countries while Deel takes on full compliance responsibility, including the risk of misclassification. This gives businesses peace of mind and significantly reduces admin burdens.

See also: How to Hire & Manage International Contractors in 2025

Umbrella companies vs. Employers of Record (EOR)

While both umbrella companies and Employers of Record (EOR) serve to manage employment responsibilities, they differ in scope and application:

• Umbrella companies: Primarily used by contractors working on short-term assignments, often within their home country
• EOR services: Facilitate the hiring of employees in foreign countries without the need to establish a local entity, handling all employment, tax, and compliance matters

For instance, Deel offers EOR services that enable companies to hire employees globally, ensure compliance with local labor laws, and manage payroll and benefits.

See also: Employer of Record (EOR): A Complete Guide

Considerations when choosing an umbrella company

• Fees and charges: Understand the fee structure, which may be a fixed amount or a percentage of earnings
• Compliance and accreditation: Ensure the company complies with relevant laws and holds necessary accreditations
• Benefit offerings: Evaluate the range of benefits provided to contractors
• Transparency: Look for clear communication regarding deductions, payments, and contractual terms

Umbrella companies in different jurisdictions

United Kingdom

In the UK, the rise of umbrella companies has been driven largely by IR35 legislation. This legislation aims to ensure contractors are taxed correctly and not misclassified as self-employed when they work like employees. These companies handle PAYE (Pay As You Earn) tax and National Insurance contributions, providing a compliant solution for contractors and clients.

France

The French equivalent of an umbrella company is known as “portage salarial.” This arrangement allows professionals to work independently while enjoying the benefits of employee status, such as social security coverage and unemployment benefits. Deel facilitates portage salarial arrangements, enabling companies to hire French talent compliantly without establishing a local entity.

Seamlessly hire and manage your global workforce with Deel

Ready to simplify global hiring? With Deel’s Contractor of Record and Employer of Record solutions, you can hire, pay, and manage contractors and employees in over 150 countries—compliantly and effortlessly.

Book a demo to get started.