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In the United Kingdom, there are things called umbrella companies. What exactly is an umbrella company and why does anyone need them? Well, an umbrella company is a company that serves as an employer to people who are working as independent contractors that work under a temporary contract. This is necessary in the United Kingdom because of legislation that was passed in 2007. The IR35 legislation created tests that would determine one’s employment status and therefore, their tax benefits.

Umbrella companies offer payroll solutions for these types of employees. The way I understand it, the contracts are drawn up for the umbrella company and the “independent contractors” are then sent to work with the employer.

Umbrella payroll services are typically used when an umbrella company is used to handle an independent contractor. So in a sense you are employed but mostly have the costs associated with self employment such as health care and no paid vacation time.

I don’t think that I like the idea of an independent contractor being taken care of by an umbrella company. I believe, as a temporary worker myself, that the umbrella company just is another company that finds itself paying taxes and typically a independent worker must now pay something to this company or their contract is otherwise effected by the need for an umbrella company.

I find this situation similar to a union in which sometimes a person might be able to find a job on his own but instead is placed into a job that she/she might not be qualified for and every two weeks must give a percentage of their check to the union to help support it. However, unlike a union a umbrella company can usually terminate the employ more easily than a union based worker could be removed by the company that he is working for.

Jeremy

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