Great business idea #1 - Umbrella Companies

Are you contracting or freelancing? Would you like to but don’t want to deal with the hassle of all the paperwork? Hire an Umbrella Company to handle all that for you. The only problem if you are outside the UK is that there aren’t any. It’s an obvious business opportunity with a real need and real income, ready for the taking with plenty of space for competition.

Umbrella Companies are hired by their employees to handle invoicing, accounting and payroll for them. They provide a similar service to Professional Employer Organization’s with the exception that the customer is the contractor who becomes an employee and not the employer.

If you are a contractor or freelancer you become an employee of the umbrella company. Most companies in the UK provide a system where you enter your hours or invoice details via a web application. The umbrella company in turn invoices your client on your behalf. They then deduct whatever payroll tax they need to deduct and pay you your salary. In the UK most charge a fixed monthly fee, but I’m sure there are all sorts of other supplementary business models.

Where umbrella companies compete are on the benefits they offer, tax deductions you can take etc. You could imagine an umbrella company offering you the latest top model MacBook Pro. Behind the scenes they would lease it and deduct it from your invoices pretax. I seem to remember hearing about Companies in the UK offering car leasing and all manners of other kinds of deductions, all without the red tape you would normally deal with as a freelancer.

Really there are lots of ways you could do this. All you really need to do this is one or two good programmers and someone with payroll and/or accounting experience. You could probably even outsource the payroll part of it to one of the many Payroll companies out there like PayCycle or PayChex.

As an employer there are risks involved, but with proper advise from an account none greater than any other employer faces.

Umbrella companies became very popular for IT contractors in the UK a few years ago because of new tax legislation making it difficult to work through your own company (or corp 2 corp as they say here in the US). The great site Contractor UK has a List of Umbrella Companies but you can also google the term to see what you find.

With the face of business changing in the US, there are more and more reasons why people would hire an umbrella company.

Update: MBO Partners seem to offer an umbrella company option, which seems to support most of everything I talk about above. Anyone have experience with them?