What is an Umbrella Company

umbrella company

Understanding the Role Umbrella Companies Have in the Global Expansion Process

An international umbrella company is responsible for employing workers on temporary contracts. It alsos take care of processing payroll and ensuring tax compliance with local regulations.

Take a look at the 8 steps of working with an umbrella company during the global expansion process:

Step 1 – Foreign businesses hire an umbrella company.

Step 2 – The umbrella company works with a recruiting company in a standard B2B relationship. Their job is to find employees to work for the foreign business.

Step 3 – The umbrella acts as the employer of record for the employees that the foreign business chooses to hire. The local professional communicates with and works directly for the foreign business.

Step 4 – The in-country manager of the employee monitors the worker’s daily activity. They then and approve his or her timesheet weekly. The local employee submits this timesheet to the recruitment agency and umbrella company.

Step 5 – The umbrella company invoices the recruitment agency for the local employee’s payment. This covers their hours worked along with any reimbursable expenses.

Step 6 – The recruitment agency then bills the end-client, which in this case is the foreign company.

Step 7 – The end client makes their payment directly to the recruitment agency.

Step 8 – The recruitment agency then pays the umbrella firm.

Once payment has been remitted, the umbrella company processes payroll and sends the funds for the employee’s salary. They also handle reimbursable expenses tax deductions, and the agreed-upon umbrella fees.

This process will take place each pay period for the duration of the relationship between end-client and umbrella company.

what is an umbrella company
How Umbrella Companies Works

Why Work With an Umbrella Company?

There are several benefits of working with an umbrella company. 

By acting as the direct employer of record, the umbrella company handles the areas surrounding immigration and local tax laws. As a local entity, they do so while operating with full compliance with local regulations.

The process of working with the contractor is simple with this arrangement. The contractor is only in charge of submitting their time sheets and other related documents to the umbrella company. The umbrella company then pays the contractor in the local currency.

There are certain difficulties that come with attempting to open a foreign subsidiary. These include:

– Language barriers.

– Difficulty in achieving full compliance with local laws.

– Challenges with attempting to hire local employees

– High costs

– Large amounts of time spent dealing with local bureaucracy.

By working with an umbrella company, you can avoid worrying about these challenges. You will also save resources by not needing to establish your own legal entity in the designated country.

How It Works

Umbrella companies makes things easy for the local employee too. The worker is simply required to deliver his or her timesheet to the recruitment agency. The umbrella company then pays the local employee directly after processing payroll.

Umbrella firms usually offer additional services to processing payroll. These include help with tasks like invoicing and handling taxes. Umbrellas will also sometimes function as the billing agent between the recruitment agency and client.

To summarize, umbrella companies provide a complete payroll service to its clients. These usually include processing payroll, timesheets, and invoices. The firm will also be responsible for paying employees their wages.

It is important to look into whether an umbrella company is established and successful in the country where you wish to operate. Also, you should be prepared to ask an umbrella company a few important questions before hiring to ensure they are a good fit for your needs.

Asking the following questions will help you better understand the benefits of working with an umbrella company:

– What is your company’s background?

– How long have you been established?

– Can you provided proof of your legal entity status?

– What is your schedule of charges?

– What is your process for handling payments to contractors and workers?

– Do you guarantee full compliance? If so, what is your process for achieving this?

– Who will be our primary point of contact?

It will also be helpful to understand the communication methods of the prospective umbrella company. This is how you determine whether their structure will fulfill your business’s needs.

The GlobalPEO Expansion Solution

Learn more about umbrella companies and additional ways to create the smoothest international expansion possible. Contact us at GlobalPEO and we will be happy to discuss further.

We understand that setting up your own entity in new countries can be challenging. It can be expensive, complicated, and require a deep knowledge of specific rules and regulations.  From International PEO, Payroll, and Recruiting, we deliver our exceptional services at an affordable price.

With entities in over 160 countries around the world, GlobalPEO is the world’s go-to company for a smooth and compliant global expansion experience. 

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