The Umbrella Company Payslip, Checked
Contractors are often shocked by their first umbrella payslip. Here is the full deduction chain — from your assignment rate to your net pay — plus what to check before you sign up and how to spot fraud.
How umbrella company deductions work — the full chain
Your assignment rate (what the agency pays the umbrella) must cover every employment cost. Here is the full deduction chain for a contractor on £400/day, 5 days/week:
| Step | Deduction | Rate | Weekly (£400/day × 5) |
|---|---|---|---|
| 1 | Assignment rate (starts here) | — | £2,000 |
| 2 | Employer NI (above £175/wk) | 15% | −£273 |
| 3 | Apprenticeship Levy | 0.5% | −£9 |
| 4 | Employer pension (auto-enrolment) | 3% of qualifying earnings | −£52 |
| 5 | Umbrella margin / fee | ~£25–£30/week | −£27 |
| = | Gross taxable pay | — | ~£1,639 |
| 6 | Employee NI (8% on excess) | 8%/2% | −£115 |
| 7 | Income Tax (PAYE at 20%–40%) | Depends on tax code | −varies |
| 8 | Employee pension contribution | 5% of qualifying earnings | −£76 |
| = | Net take-home | — | ~£1,100–£1,150 |
Employer NI rose from 13.8% to 15% on 6 April 2025. At £400/day this alone costs approximately £3,500/year more vs pre-2025 rates.
What you should check before joining an umbrella
Not all umbrella companies are equal. Before signing up, verify:
- FCSA or Professional Passport accreditation: These bodies independently audit umbrella compliance. Not a guarantee, but essential minimum.
- Written breakdown of all deductions: A compliant umbrella will give you a clear written statement showing assignment rate → gross pay → net pay before you start.
- Margin clearly stated: Your umbrella fee should be a fixed weekly or monthly amount (typically £15–£30/week). Beware percentage-based margins.
- Holiday pay method: Advanced (rolled-up) or retained? Understand which and ensure you can access retained holiday pay.
- Insurance: Check that Professional Indemnity, Employers Liability, and Public Liability insurance are included or clearly excluded.
- Payslip transparency: You should receive an itemised payslip for every payment showing assignment rate, every deduction line, and net pay.
Holiday pay — rolled up vs accrued
You are legally entitled to 28 days statutory annual leave, equivalent to 12.07% of your earnings. Umbrella companies handle this two ways:
The 12.07% is added to your weekly pay and paid every timesheet. Higher take-home while working, but no pay when you take leave. You must budget separately for holidays.
Umbrella holds 12.07% back in a pot. When you take leave, you request payment from the pot. Mirrors how employment holiday pay works. Risk: if not claimed, you may lose it at the holiday year end.
Some unscrupulous umbrellas present the assignment rate as if holiday pay is already included, without explicitly showing the 12.07% as a separate line item. Ask to see a worked example payslip before you start.
Red flags — mini umbrella fraud and disguised remuneration
Hundreds of small companies are created, each employing a handful of contractors. Each company exploits the Employment Allowance (£10,500/year per company) and small business NI thresholds. HMRC has been actively pursuing these since 2021. Signs: you are employed by a company name you have never heard of, or you are moved between employers regularly without reason.
These schemes pay contractors via non-repayable loans, annuities, or offshore trusts to avoid PAYE. HMRC has introduced the Loan Charge and will pursue contractors who used these schemes for years afterwards. The rule: if your umbrella promises take-home above 85% of your assignment rate, it is almost certainly non-compliant. Legitimate take-home at £400/day is typically 55–65% of assignment rate.
Umbrella vs PAYE vs limited company — comparison
| Factor | Umbrella | PAYE Employee | Limited Company (outside IR35) |
|---|---|---|---|
| Tax efficiency | Low (full PAYE) | Low (full PAYE) | High (salary + dividends) |
| Typical retention at £400/day | 55–60% | 55–60% | 68–75% |
| Admin | Very low | None | Higher (accounts, CT returns) |
| Employment rights (SSP, SMP) | Yes | Yes | Director only (limited) |
| Holiday pay | 12.07% (rolled-up or retained) | 28 days paid | Director discretion |
| Best for | Inside IR35, short contracts | Permanent role | Outside IR35, consistent work |
Compare umbrella vs limited company
See exactly how much you keep with a day rate inside IR35 (umbrella) vs outside IR35 (Ltd company), or calculate your IR35 retention rate.