Ever heard of an Umbrella Company? In the United States, this term is not very common. In fact, this term is almost exclusively used in the United Kingdom and Europe. However, it essentially describes a company that offers employment services for independent contractors and temporary employees. In the US, they call this an Employer of Record (EOR).
What is an Umbrella Company?
Umbrella companies typically facilitate commercial and legal agreements between 3-4 main parties that want to work together. Those parties are typically, client companies, recruitment agencies, independent contractors/employees, and finally the Umbrella companies.
The umbrella company handles all personnel functions for the other parties, including:
- Payroll
- Taxes
- Unemployment
- Employment Classification
- Insurance
- Compliance
- Timesheets
- Contracts
- Employee onboarding and paperwork
- Background checks and drug screenings
- Health benefits
- Terminating employees
- And more…
What are the benefits of an Umbrella Company?
Typically using an umbrella company or EOR allows clients and agencies to save time, save money, and mitigate risk. All three create a strong value proposition for agencies to partner with umbrella companies and EORs. Additionally, clients will seek out and use these types of companies directly, especially when employing workers internationally.
Save time:
The administrative work necessary to employ workers can take hours every week. If you are an agency or a client that employs contract workers at scale, this can be a full time job. Rather than paying an internal team to execute these tasks, partnering with an umbrella company or EOR allows them to spend more time on recruiting new talent.
Save Money:
Leveraging an umbrella company allows agencies and clients to forego large expenses typically associated with hiring contract and temporary workers. Avoiding these costs can allow agencies and clients to reinvest those dollars into their business.
Those expenses include:
- Cash for payroll funding or interest on payroll funding
- Insurance policies
- Back office software packages
- Benefits packages
- Salaries for back office staff
- Certain licenses and certifications
- Fines for compliance errors
- And more…
Mitigate Risk:
There are many risks associated with employing contract and temporary employees. Knowing all the risks and keeping up with legislative changes, like those from OSHA, is almost impossible for agencies and clients. Rather than spending time on this area, deferring the risk to an umbrella company or EOR has become the model of choice in the UK. This model is also growing in popularity in the United States.
Risks included:
- Misclassification risks
- Employment law risks
- Workers compensation injury
- Client bad debt risk
- Payroll and tax mistakes
- Negligent hiring risks
- Wrongful termination risks
- And more…
Can UK companies use an Umbrella Company in the United States?
Yes! Umbrella companies are more commonly referred to as an Employer of Record (EOR) in the US. These types of companies like FoxHire, have been supporting UK based agencies and clients for many years. Typically when clients want to expand to the United States, or UK based agencies want to support clients in the United States, they decide to use an EOR like FoxHire. The choice to do so will allow agencies and clients to avoid the risks and grow their companies and client relationships.
