A service offered in the United Kingdom whereby an umbrella company acts as an employer to independent contractors (ICs) working on temporary assignments usually provided by a staffing company. When using ICs to fill temporary positions, staffing companies in the United Kingdom often opt to issue contracts to an umbrella company as it can help to reduce their liabilities. Many staffing companies have partnerships with preferred umbrella companies. Using an umbrella company can also be a practical choice for ICs as it removes the hassle of setting up their own limited company and ensures that they meet the tests used to identify employment status for tax purposes. Most umbrella companies provide a payroll solution and also take care of all the required administrative tasks such as accounting and financial reports that independent contractors need to process. Term mainly used in Western Europe.
Source: Staffing Industry Analysts