One of the best solutions for contractors who need assistance setting up their client projects is an umbrella company. The umbrella company acts as a third party between
- you – the client
- an agency (if you have one)
- and your clients to facilitate payments, process taxes and contributions and ensure general compliance.
This can be a tremendous asset for an independent contractor, especially if you are taking on clients internationally in unfamiliar jurisdictions.
Like many businesses, not all umbrella companies are created equal. As such, it pays to do your due diligence when selecting one. We have listed the five key questions to ask when selecting an umbrella company to guide you in this process. These are the questions that we use at Contractor Taxation when vetting our network of umbrella companies.
1. How long has the umbrella company been in business?
This may seem like a basic question to ask, but it is important to know the depth of experience the company has and their longevity. Companies with a long history and good track record in multiple countries will be able to take care of you better than one just starting, or limited to service in a single location.
2. Does the umbrella company pay regularly?
A core benefit of using an umbrella company is that they act as an ‘escrow’ for your client payments, so you don’t have to worry about whether an invoice is being paid. However, you do need to check on how long it takes the company to process payments. You should also know if there is any history of delays or mistakes.
The best way to do this is to ask for references from other contractors that they have worked with, and then you can contact them to hear their opinion. This way you can learn how the company operates in real-time with an active contractor and their clients.
You should also clarify the payment terms and timelines for your proposed clients, and if there is any difference based on the country or region. Typically, electronic payments can be processed in 24 hours or less, so if there are project delays that could be a red flag.
3. How does the umbrella company manage compliance?
Whether you are working in your home country or internationally, compliance with immigration, tax and self-employment laws and registrations can be a real headache for contractors. Your umbrella company should be able to handle these for you and advise you on the legal aspects of your contract work, including any special local requirements to qualify as self-employed in the country.
The company should have a system in place for accurate tax withholding and reporting, as well as the ability to sponsor your work permits or visas when required.
4. What are the costs involved in using an umbrella company?
Umbrella companies charge a fee for their services, based on a percentage of your contract value. How much their service costs you is an important piece of information to have. You should ask to know the entire cost upfront, with no hidden or backend fees.
In some cases, you might be able to ask your end client to pay the fees or build it into your contract amount, since they also benefit from the umbrella company’s services.
5. How are their services delivered to help you as a contractor?
You will also want to ask how they typically deliver services in terms of communication and personal attention. Important questions include:
Is there a dedicated account manager?
It’s nice if there is one staff person assigned to your account. They can be familiar with any ongoing issues and your special needs.
Do they have an online portal?
More sophisticated companies may have an online portal to manage your contracts. This makes the process of invoicing, timesheets, payment and tax reporting all automated.
What is the mode of contact?
You should know ahead of time their preferred mode of communication and daily availability. If you have issues you should be able to reach someone quickly through a choice of contact modes.