The Umbrella Company Payslip.
Contractors often feel shocked when they see their first umbrella company payslip. Here is exactly why your take-home pay is lower than a standard employee's, and how to spot if you're being overcharged.
⚠️ The Golden Rule: Assignment Rate vs Gross Pay
The hourly or daily rate agreed with your agency is not your gross pay. It is the Assignment Rate. The umbrella company must deduct their costs from this Assignment Rate before your actual gross pay is calculated.
The "Hidden" Deductions
As an umbrella employee, you effectively cover the employment costs that a normal employer would pay. These are deducted from the Assignment Rate to arrive at your Gross Taxable Pay:
- Employer's National Insurance (13.8%)
A standard employee never sees this, but through an umbrella, it is deducted from the assignment rate. It is 13.8% on earnings above £175 per week. - The Apprenticeship Levy (0.5%)
A government tax on large employers. Because the umbrella company employs thousands of contractors, they must pay this, and they pass the cost to you. - Employer's Pension Contribution (3%)
If you are auto-enrolled, the 3% employer contribution is deducted from the assignment rate. (You will also see your own 5% employee deduction later). - The Umbrella Margin (Fee)
The company's fee for processing your pay. This is usually £15 to £30 per week, taken pre-tax.
Holiday Pay: Retained vs Advanced
By law, you are entitled to 12.07% holiday pay. Umbrella companies handle this in one of two ways:
- Advanced (Rolled-up): Paid out to you in every payslip. Your take-home is higher, but when you take time off, you get no pay.
- Retained (Accrued): The umbrella company holds the 12.07% back in a pot. When you actually take holiday, you request a payout from this pot.
Warning: If you use the retained method, ensure you claim your holiday pay before the end of the umbrella company's holiday year, or you could lose it!
Step 2: Standard Employee Deductions
Once all the above costs are deducted from the Assignment Rate, you are left with your Gross Pay.
From this Gross Pay, standard employee deductions are made, just like any normal job:
- Income Tax (PAYE) based on your tax code
- Employee's National Insurance (Class 1, usually 8%)
- Employee's Pension Contribution (usually 5%)
- Student Loan repayments (if applicable)
Calculate Your Net Pay
If you know your actual Gross Pay (after the umbrella deductions), you can use our standard calculator to check if your Tax and NI are correct.
Open Standard Calculator →