An umbrella company is a company that acts as an intermediary between independent contractors and their clients. The term "umbrella company" is most commonly used in the United Kingdom. Umbrella companies generally limit their activity to ensuring that contractors are paid for the work that they perform for their clients. Umbrella companies charge a fee for this service, and contractors must still perform their own administrative work unless they make alternative arrangements with the umbrella company.
A contractor that employs an umbrella company submits invoices for their work directly to the umbrella company. The company then passes the invoices on to the contractor's client, who pays the invoices directly to the umbrella company. The umbrella company takes out a portion of the payment in fees before passing the remainder on to the contractor.
Umbrella companies may charge either a percentage of an invoice for their service or a fixed amount. This varies between companies and regions. Contractors generally employ umbrella companies to help manage taxes and to ensure that they receive prompt and proper payment from their clients. Umbrella companies also provide other optional services that contractors may employ, such as assistance with paying National Insurance taxes and managing payroll details.