All businesses struggle from time to time with their financial and legal responsibilities and it’s easy for a lot of time to be spent in the important but mundane functions of administration. This time could be better spent in developing business opportunities and new income streams; instead of being engaged in paperwork employees could be making valuable contributions to a company’s growth.
A solution that is proving more and more popular with recruitment agencies is to outsource payroll, removing a large burden from the company’s administrative process whilst ensuring that contractors recruited get the financial and insurance services they need.
Umbrella companies and how they work
In essence, an umbrella company provides contractors with a payroll service. It processes the payroll and also legitimate business expenses to be set off against tax; this also eliminates the necessity of dealing with IR35 legislation – the tax authorities’ method of defining if a contractor is self-employed or acting as an employee to a business.
Acting as a middleman between contracting parties, an umbrella company collects all data that is relevant to contracts and processes it, ensuring that payment and tax issues are handled comprehensively and competently.
Benefits to recruitment agencies of effective payroll solutions
It’s not uncommon for smaller businesses in the field to look for added value to their mainstream operation. Many agencies will have employees who can handle the basics of payroll, but it takes time and most are unlikely to be experts in employment law and taxation. Using an umbrella company means that access to all those specialist resources to deal with payments is convenient but is still at arms length. The bureaucratic burden is therefore relieved and company employees can concentrate on what they do best, growing the business.
Additional benefits are that because an umbrella company is a specialist in taxation and payroll issues, it could help an agency to save money by knowing how business expenses can be balanced against taxation to bring down the overall tax bill. This is a particularly useful specialism because the laws on allowable business expenses can be very complicated at times, and having an expert to call upon means it is far less likely that HMRC will come knocking on the door requesting extra payments.
The umbrella company will also collect all appropriate data to make sure that contracts are fulfilled properly in terms of paying invoices and financial settlement.
Keeping it legal
In the world of employment law and taxation there are many grey areas that the majority of small businesses and contractors find hard to understand clearly. The last thing they need is to be taken to task – or even court – for doing something wrong and not complying with legislation. It’s a weight off the collective shoulders when payroll is outsourced in the knowledge that an umbrella company will be working to the contractor’s advantage, where money spent on outsourcing is money saved on the costs of employing in-house specialists to do the work.