Umbrella companies are a legitimate and common way for contractors and agency workers to be paid. But the space has a well-documented problem: the gap between what a client pays for your time (the contract rate) and what you actually take home is sometimes significantly larger than it should be.
The 7 red flags to check on your payslip
1. The "assignment rate" vs "contract rate" gap
Your umbrella company is typically paid a day or hourly rate by the agency or client. This should appear on your payslip as the "assignment rate" or "contract income." If the number looks lower than what was agreed with your recruiter, ask for a reconciliation immediately.
2. "Employer's NI" deducted from your pay
Employer's National Insurance (13.8%) is legally the employer's cost — not yours. Many umbrella companies build it into their rate structure so you ultimately bear this cost, but it should be visible and disclosed in your rate negotiation. If you see it listed as a deduction from your gross pay without having been told upfront, this is a red flag.
3. Holiday pay — where is it?
You're entitled to 5.6 weeks of holiday pay per year (12.07% of your pay). This should either be: (a) included in your rate and paid out when you take holiday, or (b) rolled up and paid each pay period. If you can't see it anywhere and nobody has explained how it works, something is wrong.
4. Umbrella margin vs. processing fee
Umbrella companies charge a margin — usually £15–£30/week for a compliant provider. If your paperwork mentions "processing fees," "administration charges," or anything else that looks suspiciously large, check your contract carefully. Reputable umbrellas are transparent about their single weekly or monthly fee.
5. Loans or "mini-umbrella" arrangements
If your umbrella company is paying you partly via a loan, capital advance, or any scheme that isn't standard PAYE, stop immediately. These are almost always tax avoidance schemes that HMRC targets — and you, as the worker, are liable for unpaid tax even if the scheme was your employer's idea.
6. Your payslip doesn't show employer NI separately
A compliant umbrella payslip shows: gross pay, employer NI (as a deduction from contract income, not your net), employee NI, income tax, pension, and net pay. If any of these are missing or combined without explanation, ask for a full breakdown.
7. Take-home percentage seems very high
A compliant umbrella arrangement for a basic rate taxpayer should yield roughly 60–70% of the contract rate as take-home (after employer NI, employee NI, income tax, and umbrella margin). If someone is promising 80–90%, it is almost certainly a non-compliant arrangement. The numbers simply don't work at that level with proper PAYE.
Use our umbrella company checker to verify what your payslip should look like vs. what it shows.