Compliant umbrella companies are equal – true or false?

Every compliant umbrella company will make the same deductions to your pay (PAYE). The only thing that will vary is the margin they charge for their service. Below is a summary of each deduction.

Employment costs

When you are due to be paid, your recruitment agency or end client pays the umbrella company the assignment rate. The assignment rate (sometimes known as the contract rate or uplifted rate) is the rate paid to the umbrella company, which includes the employment costs and the worker’s gross pay. The following deductions for employment costs will be made to the assignment rate:

• Umbrella company margin
• Employer National Insurance Contribution
• Employer workplace pension contribution (if you do not opt out)
• Holiday pay
• Apprenticeship levy

The amount after these deductions have been taken off is your gross pay.

Employers National Insurance

As an employee of Churchill Knight Umbrella, you conduct the work for your end client—not us. However, as your employer, we must account for employment costs and pay the required taxes to HMRC. Employment costs cannot be taken from the contractor’s gross pay, and as the umbrella margin is often small, it is not enough to cover them. Therefore, recruitment agencies and businesses that engage temporary workers will include an uplift to the assignment rate to account for employment costs.

For example, you may have noticed the same role advertised with different rates—one rate being agency PAYE and the other an umbrella rate. The umbrella rate is often higher than the agency PAYE rate to account for the uplift provided to the umbrella company.

Apprenticeship levy

The apprenticeship levy is a government scheme designed to generate money for apprenticeships throughout the UK. Every business with an annual payroll of more than £3 million must pay a flat rate of 0.5%. The annual payroll is the sum of all payments made to all workers operating via PAYE, and as umbrella companies employ many contractors, they will often have payrolls in excess of £3 million, which is deducted from the assignment rate.

Holiday pay

Holiday pay is calculated at 12.07% of your taxable income, and you can choose how it is paid to you. The first option is to have your holiday pay allocation paid to you each payday alongside your regular salary. Alternatively, you can choose to accrue it and have it paid to you in a lump sum at a later date.

Technically, holiday pay is not a deduction as it is reallocated and paid to you or accrued until you request it. However, legally, we must display holiday pay separately on your payslip.

Margin

Umbrella companies generate their income by charging a margin (usually weekly or monthly). This margin will cover their business costs, such as staff salaries, administration, etc.

Churchill Knight Umbrella offers a very low-cost, high-value payroll service. Please get in touch with us now for our best margin.

Deductions to your gross pay

Your gross pay is the amount left after the employment costs have been deducted from the assignment rate. After all the deductions below are taken from your gross pay, you are left with your take-home pay (also called net pay).

PAYE income tax

Just like an employee in a permanent role, you must pay PAYE income tax. The income tax you must pay is based on your tax band. The 2024/25 income tax rates are available on the government’s website.

Employees National Insurance

As an employee of Churchill Knight Umbrella, you may also be required to pay Employees National Insurance. The main rate of National Insurance Contributions for employees is 8%. Employee earnings above the upper earnings limit are charged at 2%.

Pension

If you opt-in to pension contributions, you will see the deductions on your payslip. It is a legal requirement for us to opt you into a workplace pension scheme. However, you can easily opt out if you do not want to make pension contributions.

Student loan

You will see this deduction on your payslip if you are currently paying back a student loan.

Summary

Every compliant umbrella company will make the same deductions to your pay, and all taxes will be paid directly to HMRC. The only deduction that will vary will be the margin they charge for processing your payroll. However, what will vary amongst compliant umbrella companies is the quality of service they offer. Make sure you choose a well-established umbrella company that will provide added extras at no additional cost (including insurance, Same Day Faster Payments, and more). There are plenty of reasons our service is industry-leading. Please click here to find out more.