An umbrella company is a company that acts as an employer for a contractor that is performing work for an end client. The most common model consists of a company that acts as an employer to agency contractors who work under a fixed term contract assignment, usually through a recruitment employment agency. When a recruitment company is involved, they typically issue contracts to a limited company to reduce their own liability. The most common scenario involves four parties:

• An end client that needs to hire a contractor
• The contractor who will be performing work for the end client
• A recruitment agency that found the contractor for the end client
• An umbrella company that the contractor works under in order to ensure tax compliance

In this scenario, the contractor has the end client sign a timesheet in which the end client states that the work performed during the applicable time period is accepted and that the hours claimed are approved for billing. The contractor will then typically send a copy of the approved and signed time sheet to both the recruitment agency and to the umbrella company. The umbrella company then issues invoices to the recruitment agency and, when payment of the invoice is made by the recruitment agency, will typically pay the contractor through a tax compliant payroll process with the added benefit of offsetting some of the income through claiming expenses such as travel, meals, and accommodation.

The umbrella company provides payroll services on behalf of the contractor and bills the agency (who in turn bills the client) for work completed by the contractor. The umbrella company provides all social contribution and tax payments from the invoiced amount (in some countries the umbrella company also provides “PAYE, Pay As You Earn” and equivalents and National Insurance returns on behalf of the contractor).

The end client is effectively the company for whom the contractor works. This may be within any industry and across all levels of employment. Many of these end clients often elect to use contractors as it affords them the ability to temporarily augment their staff or capability without the burden of the legal requirements associated with permanent employees (PAYE, Collective Labor Agreements, Sick pay, insurances et al.). Using contractors also facilitates access to special skills and typically provides the advantage of a broader skill set as most contractors have extensive experience typically gained from working within many companies and organizations during prior contracts.

The recruitment agency, if involved, performs the recruitment process on behalf of the end client. Many agencies do not provide a PAYE scheme as part of their service, which introduces a need for the umbrella company since there is a requirement for professional accountants and adherence to fiscal laws. For this reason, most agencies will elect to either utilize or encourage contractors to use an umbrella company.

The contractor or employee completes the actual work, completes a timesheet and submits the timesheet (typically via fax, secure email or secure web portal) along with expense claims to the umbrella company.

The KagNAg Umbrella Employment Service uses the same PAYE (Pay As You Earn) calculations that are used by regular companies and organizations within Sweden to ascertain how much tax should be paid. It is important to verify that an umbrella company is providing a service that is fully compliant with Swedish law since Sweden has stricter tax regulations than most other countries.

Some of the most common “allowable” expenses include: Mileage & general travel expenses, hotel and accommodation expenses and Professional Subscriptions. Food and subsistence is rarely allowed to be claimed, as it is the tax authorities’ opinion that you would eat regardless as to whether you are working or not. The exception to this rule is if you were staying away from home as part of the work.

The service fee is either set to a fixed monthly fee or a percentage of the consultant’s remuneration (excluding expense reimbursement), depending on the structure of the umbrella relationship and the size of the consultants remuneration. Our service fee covers all the services included in the Umbrella Employment Solution Package and we do not take out any extra fees, except for out-of-scope services expressly requested by our customer.