What is the difference between your assignment rate and gross rate of pay?

The difference between a contractor’s assignment rate and gross rate of pay is an area that often causes a lot of confusion – especially if you are new to contracting. Continue reading to discover the difference and why the two pay rates are displayed on your payslip.

What is the assignment rate?

The assignment rate is made up of the actual wages payable to you (your gross pay), the recruitment agency’s and the umbrella company’s fees (or margin), and the employment costs. As employers, umbrella companies are legally required to pay employment taxes on any income paid to their employees. However, as umbrella companies only charge a small margin (typically between £15-30 per week) and have no financial gain from your work, they would be operating at a loss if they paid it themselves. Therefore, the assignment rate paid to the umbrella company by the recruitment agency or end client is different from the rate you are due to be paid, as it includes additional employment costs for the umbrella company. The employment costs include:

• Employer National Insurance Contributions
• The Apprenticeship Levy
• Employer Workplace Pension Contributions
• Holiday Pay
• Administration costs (e.g. the margin, which are sometimes charged separately to you by the umbrella company)

Please visit the government’s website for more information about how you will be paid when working via an umbrella company.

What is the gross rate of pay?

The gross rate of pay (also sometimes referred to as the contract rate) is the actual wages payable to you (before tax deductions) by the umbrella company for the work you have completed. The umbrella company will deduct Income Tax and Employee National Insurance Contributions through their PAYE system and pay these to HMRC. Other deductions, such as workplace pension contributions and student loan repayments (if applicable), will also be taken. The remaining amount is your net pay, and this is the amount that will be paid to you.

How to understand deductions to your pay

It is possible to see a breakdown of the deductions that will be made to your pay before you register with an umbrella company. You will also receive a payslip for each payment made to you by the umbrella company.

Key Information Document

A Key Information Document (KID) will be provided to you by your recruitment agency before you accept an assignment. The KID is intended to improve the transparency of the information supplied to temporary workers, particularly regarding pay and the deductions that will be made. The KID provides an overview of the fees and deductions concerning the assignment rate and contract rate (gross rate of pay) and how this affects your net pay. The KID will outline what the recruitment agency will pay your umbrella company and what your umbrella company will pay you.

Payslip

When the umbrella company pays you, you will receive a payslip with each payment listing the deductions that have been made to your gross pay. It is a legal requirement for your payslip to show the following:

• Your gross rate of pay before and after deductions
• The amount deducted for each tax deduction – for example, the amount of Employee National Insurance Contributions and Income Tax, which will change depending on the hours you work each week/month
• The number of hours/days you have worked

The assignment rate paid to the umbrella company and the deductions for the employment costs will also be listed in a separate section to show the umbrella company is making the correct employer tax deductions.

Contact us today for a free and impartial take home pay illustration

If you have any questions regarding the tax deductions made to your pay. In that case, our expert Sales Consultants can explain everything you need to know to ensure you understand how you get paid when working via an umbrella company. Please call us on 01707 871622 or request a callback for a time that suits you. We look forward to speaking with you!