Umbrella employment has advantages and disadvantages. In any case, it is an interesting option when you are considering starting a business.
Admittedly, you cannot overlook the drawbacks, which mainly lie in its formalities and the entry cost.
But these drawbacks can be offset by gaining employee status and a level of flexibility you will appreciate day to day.
Definition of umbrella employment
From a legal perspective, the definition refers both to the relationship between an umbrella company and a client company. For this, it is essential to draw up a commercial contract according to the assignment. Second, to the establishment of the employment contract between the carried employee and the umbrella company.
This hybrid form appeared in 1980, initially rather discreetly. Today it is a real alternative to being an employee or a self-employed entrepreneur. That is why umbrella employment is booming, allowing many people to thrive in their activities while enjoying a significant safety margin.
Umbrella employment and its advantages
Protecting the employee while offering flexibility in their work
Many people choose umbrella employment because it offers a clear advantage over other specific statuses. Indeed, you have real autonomy quite similar to that of a self-employed person. But the major difference is that you benefit from social protection just like an employee.
Simply put, the carried employee can set their own rates and choose their clients. This flexibility is particularly attractive, and they remain free in how they carry out their work. They decide their required working time and adjust their hours as they wish.
Moreover, this flexible working arrangement also allows them to enjoy the benefits of employee status.
It is a particularly welcome safety net, especially for a new activity with income that is not always stable. The benefits then include health insurance, complementary health coverage, unemployment benefits, and retirement.
Fully launching your business thanks to umbrella employment
Among other advantages of umbrella employment, we can mention the lack of administrative burden. Indeed, many people are reluctant to leave employee status not because they lack the technical skills for their activity, but rather because of the many documents to complete and monitor regularly.
Although administrative management of an activity is mandatory, the carried employee no longer needs to worry about it. Whether for bookkeeping, corporate tax calculation, defining the legal structure and the commercial contract, these will be directly handled by the umbrella company.
A real relief to avoid administrative complications, while being certain that the required documents are properly maintained. These are not only administrative steps but also accounting and legal ones.
Of course, this service is not free: the umbrella company will charge management fees directly to the carried employee.
To finalize a commercial contract, it must be drafted correctly. Again, the carried employee does not need to worry: the umbrella company will draw up the invoices properly in line with the negotiated items and your perspective. Under no circumstances will the commercial contract be written to your detriment.
Of course, you must pay social contributions which will be recorded directly in the company’s accounting.
But that’s not all: some companies specialized in umbrella employment go further by offering their clients coverage for any payment default or delay. Once again, this provides additional security that will be appreciated by the umbrella employee.
Support for those who need it
Running an activity while remaining autonomous is the dream of many entrepreneurs. But this autonomy does not mean you won’t need regular support. That’s where the umbrella company comes in. The assistance can be provided when you launch your activity or when it needs more specific development.
The umbrella employee will have access to workshops directly tailored to their needs, enabling them to target more specific requests or to develop their own network. Choosing the umbrella employee status also means receiving support from an active community and breaking the isolation that some self-employed workers unfortunately experience.
The advantage of a secure status
March 2017 was a major milestone for umbrella employment. On that date, a sector collective agreement was signed to take into account the needs expressed by contracted consultants.
This made it possible to secure the professional pathway in a sector that very much needed it.
Again, the benefit is tangible for the umbrella employee, who receives legal protection through a contractual regulation.
The disadvantages of umbrella employment
As mentioned earlier, umbrella employment is a solid alternative for starting out as an independent. But it should not be forgotten that there are some disadvantages to take into immediate consideration.
The considerable cost of umbrella employment
The first drawback concerns the costs of this legal status. Three main elements come into play, namely:
- Employer contributions.
- Employee contributions.
- Commissions charged by the umbrella company.
Given the administrative, legal and accounting support, it is normal for the umbrella company to be remunerated via the commissions it generates. Again, the rate is free but will generally be between 7 and 11 percent of your fees.
You must add to that the social contributions representing around 75% of the net amount of the fees.
Concretely, if you invoice €20,000 in fees excluding VAT to your client, the umbrella company will deduct its commission of €2,000 based on a 10% rate.
Employer contributions will amount to €5,600 versus €2,900 for employee contributions.
As a result, you end up with a net salary of €8,500, but remember that this amount will then be subject to income tax.
A formality that must be strictly observed
Among the other drawbacks of umbrella employment is its formalism. Indeed, it is imperative to sign three separate contracts:
- First, the contract covering the provision of services. It links the umbrella company with the consultant and the client. In itself, it is a standard contract defining the payment terms as well as the start and end dates of the assignment.
- A second contract must be signed, this time corresponding to an employment contract. It concerns only the umbrella company and the employed consultant. It is drawn up simultaneously with the service contract, indicating a fixed term during the assignment period.
- Finally, there is the membership agreement involving the same parties to provide for the re-invoicing of fees as well as additional services directly managed by the umbrella company.
Consider the entry fee
Another element not to overlook is the presence of a minimum amount required to benefit from umbrella employee status. Most umbrella companies are reluctant to accept fees that do not exceed €1,000. However, this is not a legal obligation but rather a matter of discretion, so the entry fee varies depending on the company.
Some confusion about unemployment benefits
Many people mistakenly believe that umbrella employee status automatically grants entitlement to unemployment insurance. In fact, certain conditions must be met, otherwise your unemployment benefits may be lost.
First, you must always submit your monthly declaration to Pôle emploi to confirm your registration. Otherwise you will be removed from the register.
For part-time work, it is impossible to work more than 110 hours per month, otherwise you again risk being removed from the register.
Our advice on choosing a legal status
Even if you have a clear idea of your activity, it is important to correctly define your legal status. It is a decisive choice that will directly affect your income.
So rather than making a choice you might later regret, consider all the options and, if necessary, get advice from an expert who can give you precise answers tailored to your situation.
