What are umbrella companies?
Umbrella companies are organizations that are contracted – usually abroad – so that a business can use its workforce in a foreign country. They are a big part of a global business expansion plan. For a company to hire employees locally in the target country, say India, they would have to undergo proper setup and compliance in that country.
Often, companies don’t want to set up such a full-fledged presence in another market. Rather, they want to acquire a workforce (typically on a temporary basis) from a foreign country. This helps the company grow its business without jumping through the hoops of an entity setup.
This is where an umbrella company Phases into the picture. Suppose a company in the USA or UK wants to hire from India and establish their presence here. An umbrella company helps this business hire resources locally in India. An umbrella company can be client companies like government agencies, construction contractors etc., or recruitment agencies that seek and onboard workforces in India. Or, they can be a specialist human resource organization that provides HR support.
What role do umbrella companies play in the global business expansion?
The main benefit of an umbrella company is that it manages tax remittance and local employee compliance. They are typically contracted on a temporary basis. This is how an umbrella company aids in global business expansion:
- Phase 01 – Hiring the umbrella company
For the sake of example, consider that a company in the UK wants to hire employees in India. They contact an umbrella company in India and the process begins.
- Phase 02 – B2B relation for recruitment
The umbrella company now enters a B2B contract with a recruitment agency / HR organization. Their responsibility is to find employees who can work for the foreign business. The company in the UK curates the employees that they want to hire from the lot that the umbrella company provides.
- Phase 03 – The umbrella “employs” the human resources
Now, the umbrella company becomes the legal employer of these human resources. In other words, it acts as the employer of record (EOR). But in essence, the employees work for the company in UK.
- Phase 04 – Local Monitoring
Working with remote teams can be tough, especially when it comes to getting the most throughput from them. Therefore, a manager is appointed to monitor the employees’ daily job performance. Employees are also tasked with creating a timesheet with tasks and the hours they put in. They submit it to both the recruitment agency / HR company and the umbrella company. The company in the UK is not involved in these admin tasks.
- Phase 05 – The Recruitment Agency in India pays the salaries
Although the employees in India are working for the company in the UK, the foreign business cannot directly pay them without getting into a tax and compliance nightmare. Therefore, it is the recruitment agency in India that pays the salaries of these employees.
- Phase 06 – Recruitment agency invoices the company in the UK
However, the salaries for these Indian employees don’t come out of the recruitment agency’s pockets. The agency raises an invoice to the UK company. Because it is an invoice and not a salary, this foreign remittance is treated differently for the UK company. This helps business in the UK avoid getting into outward expense taxation complications.
- Phase 07 – Payout
The UK company pays the recruitment agency.
- Phase 08 – The recruitment agency routes the payment
Now, the umbrella company receives the invoiced amount from the recruitment agency in India. Now the umbrella company shoulders employee responsibilities like payroll processing and employee salaries. They also look after reimbursable tax deductions. They also take a fee for facilitating this whole transaction.
By the end of this 8-phase process, an umbrella company has successfully allotted employees in India to a foreign business while maintaining perfect local compliance and tax regulations.
Benefits of Working with Umbrella Companies?
There are 3 main benefits of using umbrella companies for global business expansion:
- Businesses can hire globally, without setting up an entity in their target country.
- The foreign business is relieved of the duties of local taxation and employee compliance. And yet getting work out of the employees in India.
- The local employees report to their recruitment agencies and thus bypass language and cultural barriers between themselves and the foreign business.
PEO for Global Hiring
Apart from very slight differences in the method of submitting pay slips for the employees, a Professional Employer Organization will act in much the same way as an umbrella company. A PEO provides human resources, processes their payroll, looks after their taxation, and ensures they are in local compliance. The best Indian PEO agency will find the right resources for you, work closely by understanding your goal for India operations, and aid you in overall global business expansion. If you are looking for a PEO agency in India, you’ve come to the right place. With 15+ years of experience in the Indian markets, we understand India, its people, and its marketplace.