Why do Recruitment Agencies use Umbrella Payroll Companies?

“But as you begin to scale, you need to find people to manage this internally or a solution externally that manages all of this.”

In the past, during the regular business development activities, I was often asked by recruitment agencies “Why should we use an umbrella company”. And this was a standard question at the time, and I had my pitch so streamlined it answered that question the normal follow-up questions, all in one!

However, over my time, it became apparent that while my industry was educating the recruitment sector on the benefits of using an umbrella company. The contractors were not getting the same level of attention. And let’s be honest, it’s the contractor that needs to sign-up for the solution for all of this to work.

So, I wanted to create a short article explaining the reason behind the relationship between the recruitment and umbrella industry.

Let me give you an understanding of the main challenges faced by recruitment agencies when they venture into the contracting market. It’s not easy, not only do they need to secure the trust of their clients. But managing the payment process and accepting liabilities to the client and the contractor. Fortunately, the risks may be minimal when you only have 1 or 2 contractors. But as you begin to scale, you need to find people to manage this internally or a solution externally that manages all of this.

Also, bear in mind, if you build the function internally, what happens if the contracting market goes into a downturn, you may have to lay people off?

And with all these moving parts, this is where an umbrella company comes into play. For a recruitment agency, they remove all the employment liabilities, contractor insurance and payroll management while providing scalable services that move up and down based on the agency’s requirements.

All this while at the same time providing employment rights protection for the contractors and delivering a flexible solution which is available to use as and when required. Adding to the fact that there is next to no financial administration for either party while using an Umbrella company. It’s very much a win-win for both the recruitment agency and the contractor.

Less paperwork