Umbrella companies: how they work, their pros and cons

Thinking of getting into freelance work, but don’t want the hassle of overseeing your business admin and finances? There’s a way to enjoy the freedom and autonomy that working as an independent contractor gets you without compromising on the conveniences of being a salaried worker. Ever consider an umbrella company?

Wage portage came into being in the 1980s as a new form of employment that many have found useful by virtue of the fact that it sits somewhere between salaried and freelancer status.

How does this service work, exactly? In what instances could it work in your best interest? What are its pros and cons?

This article goes into more detail about this often overlooked solution for no-fuss freelancing.

Wage portage is a contractual relationship between three parties:

• an “employee”, who is often a contractor (a salarié porté in French);
• an umbrella company;
• a client company.

By agreeing to receive wage portage services, a contractor becomes linked to the umbrella company through two distinct contracts: a membership contract (contrat d’adhésion) and a work contract (contrat de travail). The contractor is effectively an employee of the umbrella company.

The membership contract sets out the terms of engagement between the contractor and the umbrella company.

The work contract gives the contractor a salaried status with all its associated social benefits. It includes all the usual legal mentions you would find in a traditional work contract (type of contract, duration of contract if the contract is fixed-term…).

Although technically speaking the contractor is a subordinate of the umbrella company, this “employee” maintains a decent amount of autonomy in the types of work they choose to engage in and can set their own prices for their services. In fact, it remains their responsibility to find work and prospective clients.

In the meantime, the umbrella company handles all the administrative and finance management for their employee. Not only do they oversee invoicing (quotes, invoices, order receipts…), but they’re also in charge of of following up with customers and submitting all of the required administrative declarations on behalf of the contractor. That way, the employee can focus on what they do best - their work.

In exchange for taking these tasks off the contractor’s hands, the umbrella company charges a management fee by taking a commission from their employee’s invoices.

Every time a contractor enters a work agreement with a client company, there needs to be an engagement contract signed between the client and the umbrella company. The contract outlines the nature, duration and pre- and post-tax prices of the service, as well as any relevant clauses that will ensure smooth delivery.

Once the mission is completed, the client company pays the umbrella company, which in turn pays the contractor the post-commission balance in the form of a salary.

To qualify for wage portage services you must:

• preferably do business providing intellectual services (e.g. consulting, training, etc…);
• hold a baccalauréat +2 diploma or have over 3 years’ experience in the same sector as your business;
• earn at least 70% of the monthly threshold for Social Security as gross income, which in 2022 is €2,397 if you are a junior umbrella company employee (i.e. less than 3 years’ experience), or over 75% of said threshold if you’re a senior umbrella company employee (i.e. over 3 years’ experience), which comes to a gross monthly income of €2,568.

As you can already see, the eligibility requirements for wage portage can be rather restrictive.

On top of that, there are some professions that are simply not eligible for wage portage. This applies to liberal professions that are regulated by the justice department, accounting or medicine (like lawyers, CPAs or auditors, for example). Even professions that provide direct services to people (like childcare) are excluded from wage portage.

Conversely, the following professionals often turn to umbrella companies for wage portage:

• engineers;
• marketing consultants;
• finance consultants;
• project managers;
• administrative assistants;
• recruiting agents.

There are a variety of reasons why these professionals would "hire" an umbrella company: perhaps a recent graduate is looking to gain professional experience, or a company creator is looking to test out a business idea, or maybe a retiree is looking to make a little extra money on the side.

Umbrella companies are also often used by freelancers starting out in their business journey who don’t want to get bogged down by administrative and financial tasks.

Wage portage combines the positives of salaried work and independent contracting.

• A lighter load for administration and finance management

The umbrella company employee doesn’t have to go through the process of creating a company, which means they’re spared all the mandatory administrative tasks that come with it like invoicing, accounting, administrative declarations, etc. As a result, they have more time to dedicate to the fundamental work for their business: prospecting and delivering their services to customers.

Their only administrative requirement is that they have to submit a monthly business activity report (compte rendu d’activité or CRA) to their umbrella company. This outlines the days and hours they worked that month.

• Terrific social protections

Umbrella company employees have basically the same rights as a normal salaried worker. They benefit from social protections like unemployment benefits, retirement, the ability to take 5 paid weeks’ vacation per year, etc.

• Easy access to loans

Even in today’s entrepreneurial world it’s difficult for an independent contractor to secure a loan. Banks are hesitant to extend them a line of credit and tend to favor salaried workers, whose financial situations are seen as more stable and reliable. Umbrella companies can help your business project get the help it needs (e.g. for purchasing real estate) by making it appear more robust.

The autonomy of a freelancer

The umbrella company employee is tied to the umbrella company by a work contract. However, they are free to set their own work hours, jobs, clients and rates as they see fit.

Although working through an umbrella company has many advantages, there are some inconveniences you can’t ignore.

Non-negligible management fees

Umbrella companies pay themselves by taking a commission off their employees income for handling their administrative work (invoicing, follow-up with customers, etc.). These fees can range anywhere from 5 to 15% of their revenue.

Of course you also need to factor in the payments for social charges and taxes. The difference between the gross revenue and the net income for an employee can be remarkable.

Limited eligibility

As we mentioned above, not every professional can sign up for wage portage services. This status commercial or artisanal activities, for example.

It’s also worth mentioning that umbrella company employees need to earn a minimum monthly salary. This is why most junior profiles tend to not opt for wage portage when they’re just starting out in their industry. This also applies to those who are looking to start a side business.

Are you a freelancer looking for a business account that’s easy and intuitive to use, and 100% online? With Qonto you can open an account in less than 10 minutes and boost your freelance business.