Umbrella Company - what is it and is it profitable?
What is an umbrella company in Poland?
In the Polish legal system and on the Polish labor market, the concept of “umbrella company” does not function directly in the sense that it does in Great Britain and other Anglo-Saxon countries. In practice, a role similar to the umbrella company model in Poland is played by employment agencies and temporary employment agencies, which deal with the formal employment of employees on behalf of the employer. This is particularly attractive for foreign companies that want to run their business effectively in Polish, avoiding the need to establish a local company. An umbrella company formally employs employees, handling administration, settlements, and tax law obligations.
In addition, umbrella company services will work especially well when:
- A company needs a quick start to business
Thanks to cooperation with an external agency that takes over all HR and payroll responsibilities (payroll), a foreign company can start operations in Poland almost immediately. The process of registering a company, obtaining a tax identification number, REGON and other formalities takes much longer, so an umbrella company is an ideal solution when time is of the essence. - The company wants to transfer responsibility and settlements to an external partner
The agency acts as a formal employer and takes over all the responsibilities related to employment – from settlements with the Social Insurance Institution and the Tax Office, to health and safety issues and compliance with labor law. For a foreign client, this means no need to deal with local regulations and procedures – one invoice for the employment agency is enough. - The company employs temporary or project workers
This model is ideal for industries such as IT, consulting, logistics, events or seasonal production, where specialists or teams are needed for a certain period of time. An umbrella company can quickly provide a legal and formal employment framework without long-term obligations (in accordance with the Act of 9 July 2003 on the employment of temporary workers). - The company is testing the Polish market before a larger investment
If a foreign investor is not sure whether he wants to enter the Polish market permanently, the umbrella model allows you to flexibly check the market potential and the effectiveness of local teams without the need to create your own company or branch.
From the employee’s perspective, this means that they sign a contract with an umbrella company, which takes over the task of paying salaries, paying social security contributions, as well as settling income tax.
How does an umbrella company work?
The umbrella model of operation is based on three-way cooperation: between an employee (or contractor), an umbrella company, i.e. an employment or recruitment agency (intermediary, formal employer or principal), and the end customer, i.e. the employer (the so-called employer-user), for whom the employee physically performs work. Key elements include:
- Formal employment: an umbrella company signs a contract with an employee who is formally an employee of the company, even though they are actually doing the work for the end customer.
- Compensation administration: The umbrella company calculates and pays the employee’s net salary, taking into account tax deductions, social security contributions, and any other costs.
- Flexibility: depending on the needs, employees can work together on the basis of an employment contract, a mandate contract or a B2B contract.
Advantages of using an umbrella company
Using the services of an umbrella company brings a number of benefits to both employers and employees. For companies, this means an effective solution that allows them to focus on the goal of running a business, eliminating the administrative responsibilities associated with hiring people. In turn, the employee gains job security. Below are the detailed advantages of using this model of cooperation.
Key Benefits for Companies Using an Umbrella Company
- Save time and resources:
The employer avoids the need to manage local administrative and legal obligations, allowing them to focus on the purpose of running the business. Thanks to the umbrella model of cooperation, companies do not have to engage additional forces in recruitment and HR and payroll services, which further reduces operating costs. - Legality of activities:
The umbrella company ensures that employment is compliant by paying taxes and contributions due, which eliminates the risk associated with tax law. Thanks to this, the employer can be sure that all obligations towards Polish authorities, including those related to income tax and social security, are carried out in accordance with the regulations. - No need to set up a company:
For foreign companies, this is a significant simplification, eliminating the costs and formalities associated with registering a company in Poland. This makes hiring people quick and safe, and companies avoid the risk of errors resulting from ignorance of local legal regulations.
What to look for when using an umbrella company?
While there are many advantages to using such a model of cooperation, there are also some elements that need to be verified before deciding to work with an umbrella company in Poland. In order for an agency to legally perform the role of a formal employer, it must meet a number of requirements set out in Polish law. First of all, it must have an entry in the National Register of Employment Agencies (KRAZ), which confirms its entitlement to provide services in the field of temporary work or job placement.
In addition, the umbrella company should comply with the regulations:
- the Act of 9 July 2003 on the employment of temporary workers (Journal of Laws of 2003 No. 166, item 1608, as amended), if it operates as a temporary employment agency,
- of the Labour Code – in the scope of concluding and implementing employment or civil law contracts, ensuring minimum employment conditions, timely payment of salaries and provision of social benefits,
- health and safety regulations and ensuring safe, hygienic working conditions,
- tax regulations – including the obligation to properly settle and pay personal income tax (PIT) advances and social and health insurance contributions to the Social Insurance Institution,
- The Act on Counteracting Money Laundering and Terrorist Financing (AML), as the umbrella company is often responsible for the flow of funds between the client and the employee.
It is also important for the umbrella company to be transparent about:
- the method of settling remuneration and operating costs,
- the contracts used (whether they are employment contracts, civil law contracts or other forms of cooperation),
- legal liability and insurance conditions (e.g. business liability insurance),
- GDPR-compliant personal data protection policy.
Is an umbrella company profitable?
The profitability of using the services of umbrella companies depends on the specific situation. For foreign companies that want to avoid the formalities associated with registering a company in Poland, it is an effective way to hire employees quickly and legally. On the other hand, for temporary workers and agency workers, the umbrella company offers legal and safe employment in accordance with the requirements of the Labor Code.
Umbrella company is a model that allows companies to effectively manage employment in Poland without the need to establish local structures. For employees, it means simplifying formalities and access to flexible forms of cooperation. What else does this model provide and what problems does it solve?
The need for a quick operational start
By using the services of an external partner who takes over the responsibilities related to employment and HR and payroll services, the company can start operating almost immediately. Meanwhile, the traditional registration of an entity, obtaining a tax identification number or completing other formalities could take much more time.
Willingness to delegate responsibility and settlements to an external entity
An agency operating as an umbrella company becomes a formal employer, handling issues related to the Social Insurance Institution, the tax office, health and safety regulations and labor law. The foreign client transfers the remuneration to the agency, which then pays the funds to the employee and settles accounts with the relevant institutions in Poland.
Temporary employment of employees (e.g. project)
In sectors such as IT, consulting or seasonal orders, foreign companies often need to hire specialists quickly for a certain period of time without creating long-term structures.
Access to local specialists without the need for physical presence
In industries such as technology, marketing or R&D, this model allows you to use the knowledge and experience of Polish employees, while entrusting all the formalities to a local operator.
Market research before making a larger investment
If a company is not yet decided to fully enter the Polish market, the EOR/umbrella company/outsourcing model allows you to test its potential without the need to involve significant resources and organizational resources.
However, the decision to choose cooperation with an umbrella company should be well thought out and take into account the needs and plans of the organization. In Polish conditions, where the labor market is developing dynamically, the umbrella companies model (usually referred to as temporary work, employee leasing or employee outsourcing) can be an effective tool to support the achievement of business goals.
Umbrella company – what is it and is it profitable?
Have you wondered how to simplify the formalities related to working on a contract or short-term orders, while taking advantage of the protection of employee rights? The solution may be an umbrella company – a model of cooperation that combines flexibility with convenience, where an external company takes over administrative and tax responsibilities. In this part of the article, you will learn what exactly umbrella companies are, how they work, and what advantages and disadvantages they have. Is this an option that suits your needs? Let’s find out!
What is an umbrella company?
Umbrella companies are a solution created for temporary workers, contractors and people cooperating with recruitment agencies. They act as an intermediary between you, your end client or agency, and the tax system. Its main task is to handle formalities related to the payment of salary, calculation and payment of due taxes, such as income tax or social security contributions.
To better understand what umbrella companies are, imagine the following situation:
You are a software developer working on a contract for a large technology company. Instead of hiring you directly, the tech company works with a recruitment agency that finds contractors like you. However, to avoid the complicated bureaucracy of running a business on your own, you use an umbrella company , i.e. employment agencies.
An umbrella company enters into a contract with the end customer, and you do your work on a temporary contract. Your remuneration is calculated based on the gross amount received from the client, after deduction of administrative costs and taxes. In addition, in an umbrella company, you can deduct costs, in the form of travel expenses or other expenses incurred in connection with the performance of the order.
Is an umbrella company the best option for you – instead of self-employment or full-time work?
For many people, an umbrella company is an alternative to self-employment or full-time work with a direct employer. Importantly, employment by an umbrella company ensures that employee rights, such as paid holidays or sickness benefits, are preserved. This is especially advantageous compared to running your own business or self-employment, where all the responsibilities related to tax and legal services lie with you.
This employment model eliminates the need to deal with complications resulting from tax regulations. However, it is worth remembering that using the services of an umbrella company is associated with additional costs related to administrative services. However, for many agency and temporary employees, especially those carrying out short-term projects, it is a convenient and tax-efficient option. The final decision on choosing employment by an umbrella company, i.e. an employment agency, depends on your individual needs and the conditions proposed in the job offer.
How does an umbrella company work from an employee’s point of view?
The operation of an umbrella company can be described as a combination of administrative and legal and tax functions, which relieves you of the formalities related to running a business. When you decide to work with an umbrella company, you sign an employment contract with them, and they become your official employer. An umbrella company works between you and the end customer, taking care of, m.in the payment of salary, deduction of income tax and social security contributions.
What does it look like in practice, and what does it mean for you?
Your payout, calculated based on the gross amount paid by the customer, is minus administrative fees, taxes, and other expenses. The umbrella company also makes sure that all taxes due are transferred to the appropriate authorities, so you can be sure that you are operating in accordance with tax law.
With this system, you can focus on fulfilling your professional duties, leaving legal and administrative services in the hands of the umbrella company.
Disadvantages of using an umbrella company
The use of an umbrella company also has its limitations. The biggest disadvantage is the additional administrative costs that the umbrella company deducts from the gross amount before the salary is paid. In such a model of cooperation, you also lose the opportunity to have full control over your finances and tax optimization.
It is also worth remembering that when working with an umbrella company, you are dependent on an external intermediary, which can be a disadvantage for people who value independence. Therefore, before making a decision, consider whether this form of cooperation suits your professional and financial needs.
Who is an umbrella company for?
Umbrella company is an ideal solution for people who carry out short-term projects or are looking for temporary work. It is also a great option for those who value convenience and want to avoid complications related to formalities.
This model will also work if you care about employee rights, which are not offered by self-employment. However, for those planning a longer cooperation with the end customer, it may be more beneficial to run their own business. Consider whether the convenience and support that an umbrella company offers is right for your purpose of running a business.
Is an umbrella company profitable?
Whether an umbrella company will be profitable for you depends on your professional situation. If you work as a temporary or agency worker on short-term projects, an umbrella company may prove to be a convenient solution. However, the profitability also depends on how long you plan to work in this system. For long-term projects, where the salary is based on high gross amounts, having your own company can be more advantageous, especially since it offers opportunities to optimize income tax. Umbrella companies, or employment agencies, are great for those who value simplicity and labor rights. The choice of this form of cooperation depends on your way of doing business and expectations.
If you are considering cooperation based on the umbrella company model in Poland, it is worth betting on a proven partner. LeasingTeam Group and its constituent companies have the required entries in KRAZ (Register of Employment Agencies), which guarantees the legality and security of cooperation.
Are you looking for a flexible and lawful employment model in Poland? Contact us – we will help you choose a solution tailored to your business needs.
