Independent Consultants-Have You Considered an Umbrella Company?
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Many independent consultants and independent contractors grow their business completely unaware of how an umbrella company can work for them. Freelancers and other self-employed individuals utilize their own talents to find clients and manage the various details of their business. By expanding their client base through hard work, word of mouth, and networking, steady income is of course attainable. But growing the business isn’t the only requirement for success - you also have to run your back office and manage your financial well being. An umbrella company offers many options tailor-made for self-employed individuals who may be great at their professional occupation, but less prepared for running a full scale business as an independent consultant.
If you are going to work as an independent consultant or contractor, you have two main options: you can either set up your own company, or you can sign up with an umbrella company (also called an employer of record) to handle all the billing, accounting issues and paperwork for you. If you have been working as a company, or you have not yet taken the plunge into working as an independent contractor and are just thinking about going solo, there are some very good reasons why you might consider working through an umbrella company.
1. An umbrella company takes care of all the paperwork for you.
Managing your own company means you have to keep records, handle all the invoicing, and maintain all your expense records to be on top of any tax code changes that might affect you. When you partner with an umbrella company, they handle those details for you. All you need to worry about is making sure that the umbrella company has your time sheet each week so that they can invoice the company for which you contract.
2. You can let the umbrella company worry about the details of your taxes.
As your own company, it falls to you to figure out the complicated tax codes, set money aside for taxes, track your business expenses, and file quarterly estimates. When you work through an umbrella company or employer of record, you get to take advantage of their expertise in tax administration. If you are uncertain about whether or not you can claim certain expenses, you have experts to tell you what is legal and what is not. That gives you peace of mind in dealing with taxes so that you can relax and concentrate on your business. An employer of record will withhold the requisite taxes for you and enable you to enjoy simple tax filing at the end of the year with a W-2. Most programs will also enable you to take the same kinds of business and medical expense deductions that you are eligible for on your own.
3. You can concentrate on getting the work done.
Whether you’re freelance for business consulting, financial advising, doing IT work, or design, working through an umbrella company means you can focus on what you do best. The umbrella company handles the details of contracts, billing, invoices, and collections, ensures that your taxes are administered, and generally handles all the parts of your business that keep you in business. That leaves you free to focus your time and energy on what you actually are getting paid to do.
4. You get the advantage of company benefits usually reserved for full time employees.
When you work through an umbrella company, you have access to all the benefits enjoyed by full-time employees, including true group medical and dental plans, general liability and E&O insurance, and more...
Is an umbrella company the right choice for you?
There are advantages and disadvantages to both umbrella companies and setting up your own companies. Your personal circumstances and attitudes can help decide which the right choice is for you.
-Administration
If you are not comfortable with managing the administration end of a business, an umbrella company will take that load off your shoulders. Running as your own company means that you will have to deal with all paperwork, tax reporting and administrative requirements. If that is something you are comfortable with, then your own company may be a good option. If you would rather avoid that hassle, then opt for an umbrella company.
-On the fence
If you are not sure which is the better choice for you, then it may make sense to work through an umbrella company, at least in the short term. It is far easier to leave an umbrella company and start your own company than to go in reverse, dissolving your company to sign up with an umbrella firm.
-Your own status
If you work through an umbrella company, then you cannot claim to own your own business, or represent yourself as the director of your company. If it is important to you to be able to do that, then a limited company is the better choice for you.
About the Author
Brain Jenkins is a freelance writer who writes about topics pertaining to employment opportunities and Umbrella Companies such as MBO Partners
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