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How does a PAYE umbrella company work?

Published on Aug 25, 2009 |

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In this article, we look at how the typical PAYE umbrella company works in practice, and what to expect when you sign up to a new scheme.

How does an umbrella company work?

Once you have chosen an umbrella company which suits your needs,

Signing Up

You will become an 'employee' of the umbrella company. You need to provide your P45 or P46 form to get started together with administrative details such as your NI number, bank account and personal details.

Contracts

Once you find a contract role, your agency will sign a contract with the recruitment agency. You will also sign a contract for employment with the umbrella company.

Timesheets and Invoicing

Each week or month, you will submit your timesheet details to your umbrella company. This is typically done online. The umbrella will then submit an to your agency on your behalf. The agency will then pay the umbrella for the invoiced sum. Check with your umbrella how often the make payments, as some make payments the same day they receive funds, others may only pay once per month.

Payment

At the pre-agreed time in your cycle, the umbrella will pay you directly into your bank account. You should receive your invoice amount minus deductions for income tax (PAYE), national insurance, the umbrella fees, and any other deductions you have pre-agreed.

Expenses

During your time with the umbrella, you will also be able to submit expenses claims for pre-agreed items. You can only claim for expenses which have been fully incurred in the conduct of your contract work. You should also read our guide to expenses dispensations.

Before you sign up!

With so many umbrella offerings on the market, you should always spend time on research before signing up.

Make sure you read our 15-point guide to choosing the best umbrella company.

Also try our growing list of UK contractor umbrella companies.