Umbrella Companies

A Step-By-Step Guide to Umbrella Companies for International Contractors

International contractors all share one thing in common, and that is the fact that they are expats working in foreign countries.  This work may be performed onsite in the client’s country, or remotely in a third country selected solely out of your preference. 

This does bring up one important question: how exactly can you get paid in a foreign country for your services? 

After all, you are not a resident and wont have all the banking and business relationships set up as you might in your own country.

  • How will you know if your client will pay you on time?
  • What about securing a work permit?
  • How do you calculate taxes and receive payments in your account?

This is where umbrella companies come in, acting as a third party intermediary to facilitate payments from your client, withhold taxes, issue a payslip and act as your ally while working in a foreign land. 

Even if that sounds good, what exactly are umbrella companies?

An umbrella company is a business which provides payment services to contractors by acting as their de facto employer.

They typically have hundreds or thousands of contractors being paid through them which means they can deliver payroll-like services at a nominal fee.

They are also known as Contractor Management Companies and US independent contractors use the term PEO (Professional Employer Organization). 

For example, the UK has the largest and most well-established range of umbrella companies in the world, underpinned by heavy use by contractors in the City of London.

Successive governments have legislated against the use of certain Umbrella Company structures with limited success.  The bottom line is that there are umbrella companies in almost any country in the world, who can ease your international contracting journey.

How Do Umbrella Companies Work? A Step by Step Guide

If you are wondering how an umbrella company can work for you, we have put together all the steps involved, and how you can participate in the process.

  1. You contact your client and let them know that you would like to use an umbrella company to deliver services and receive payment.
  2. Once your client agrees, you can contact us at Contractor Taxation and we will recommend the best umbrella company (our network partners) in the destination country.
  3. We will recommend our partners. Then, you can give them the client details and your personal information so they can start the process.
  4. Once you start contracting with the umbrella company–let them know all of the client contract terms, rates and agreed payments.
  5. Our partners will determine your tax residency status and any applicable expat tax rates.
  6. If necessary for your nationality, the umbrella company will apply for and secure your work permit as a legal sponsor.
  7. The umbrella company will contact your client and let them know how to send payment so that it can be passed on to you once work begins.
  8. Each month, the umbrella company will invoice your client for payment based on your contracted rate..
  9. Taxes and social contributions will be withheld for you, who will then issue a payslip and make direct deposit to your account.
  10. In the event of any dispute with your client, the umbrella company will facilitate a resolution.

What is Covered?

All umbrella companies have some services in common. They will sign a contract with the contractor and also sign a contract with the recruitment agency or end client. 

  • They handle invoicing of the client and the processing of payment. 
  • They calculate and submit income tax, national insurance and pension contributions as required.
  • Pays all bank holidays as required by law. 
  • They will hold the necessary insurances and licences including Professional Indemnity and Public Liability Insurance. 
  • Issues you a payslip each month, to a local or foreign account
  • Sponsors work permits for the contractor
  • Helps set up the contract with the client
  • Moderates any disputes with your client
  • Advises on access to totalization and double taxation treaties

You can see that the array of services would be hard to duplicate using a DIY method, which is why many contractors opt to use umbrella companies for their international contracting.

Monica, a Swiss national, contacted Contractor Taxation inquiring about an umbrella company for her contracting work in the UK for a new client. 

She had never worked in the UK and did not know where to start. Even though she had a confirmed offer and contract from her client. 

Monica understood that she couldn’t just show up to work abroad without some preparation and assistance. So she contacted us for our recommendation.

Monica was concerned about timely client payments and securing a work permit, and didn’t think she could handle it on her own. 

We put her in touch with the best option from our UK assessment, using the process described in the next section below.

Monica contacted the company, they gathered her details and then contacted her UK client to confirm the contract and that they were willing to participate. 

Next, the umbrella company started the work visa process, and walked Monica through how the whole payment process would go once she began her new role. 

Aside from providing the original information and answering follow up questions, our partner handled everything for Monica.  She began work, and each month received her payslip and bank deposit as promised.

Monica shared her experience, saying

“I don’t know what I would have done without the guidance and help from Contractor Taxation.  I had no idea how to  begin researching umbrella companies, or if they were even valid.  I was able to start work with confidence that everything was legal, and I would receive my payments on time.”

How Did Contractor Taxation Assess and Find the Best Umbrella Company in the UK for Monica?

If you are looking for an umbrella company we have done extensive research into the best global companies, such as we did in the UK for expat Monica.

Using our supplier assessment criteria and feedback from current contractors we selected the top companies from our UK partner network. They offer the highest possible legal retention (up to 84%) and ensure:

  • 100% HMRC (tax agency) compliance by only using structures that have been assessed and approved by HMRC.
  • Payment made to the contractor on the same day it is received.
  • Extremely quick and easy set-up.
  • Alleviating the administrative burden of running your own Limited Company including: no VAT returns, no invoicing, no company returns, 

Our partners provide a higher level of service including dedicated account managers, IR-35 assessments and IR-35 insurance and retaining top tax experts to deal with any routine enquiries from the tax office.

Contact us to obtain more information or quotes on your net earnings from a variety of different companies and choose the solution that best suits your situation.


Who regulates umbrella companies and how are they structured?

One good example is the UK model, where there are no direct regulatory agencies for these companies.  But tax authorities do pay attention to these entities and contractors to make sure they are not tax avoidance schemes.   

Umbrella companies in the UK can be structured in a variety of ways – the term applies to virtually any company which handles payment for contractors, meaning these companies may operate a simple PAYE structure they may supplement this with expense processing or dispensations.  

All compliant umbrella companies pay their contractors as PAYE (Pay as you Earn) employees for a large portion of their earnings. They invoice the clients/recruitment companies and then process contractors through PAYE. Contractors are often able to offset their taxable income by claiming legitimate business expenses.

Is there a list of umbrella companies?

Contractor Taxation maintains a list of reputable umbrella companies that we work with often, and know are reliable.  Examples include Deel and Iglu, with whom we have enjoyed a long partnership and they regularly onboard international contractors that we refer.

Who pays the umbrella company?

This will usually depend on how the relationship was initiated, so if a contractor wants to use an umbrella company then it may be at their expense.  But, in many cases the client can be approached with the idea, which has many benefits for them as well.  They might agree to pay the umbrella company fees, or at least split them with the contractor.

Do umbrella companies pay sick leave and holidays?

Yes, umbrella companies must pay statutory leave for contractors, and the client will be invoiced accordingly.

Do umbrella companies withhold tax and social contributions?

Yes, each month the umbrella company will calculate withholding and issue a payslip with the correct deductions.  This greatly simplifies the tax reporting and compliance challenge for expat contractors.