Jun 24, 2019

When looking for an Umbrella company, you may be surprised to find there are lots which offer 80%+ take-home pay. How can they do this? The short answer is: they can’t, not legitimately anyway. It’s important to understand the issues surrounding Umbrella company compliance.

The Umbrella companies who offer hiked-up take-home pay are breaking the rules, leaving contractors exposed. 

There are a myriad of ways in which non-compliant Umbrellas seek to bend the rules. Very often, contractors are offered ‘loan schemes’ or ‘investment opportunities’, but these are not legitimate ways to get paid. As convincing as they may sound, these schemes are what the law would class as tax avoidance.

As an FCSA-approved Umbrella company, we are here to help you get the best take-home pay whilst working in a compliant manner. We work out your pay according to HMRC’s rules, here’s how.

How is Umbrella pay calculated?

As an Umbrella employee you need to be aware of how your rate of pay is calculated.  See our article on how Umbrella pay is calculated to view a sample payslip

  • Assignment rate

This is the rate you see in the advert for a role.  It’s the rate paid by your employment agency to us as your Umbrella company for your work.

  • Agency margin

The Agency will take a profit margin from the rate it receives from the end user (the organisation you’re providing services to), and pass the rest on to us as your Umbrella provider.

  • Umbrella margin

We could not provide our Umbrella services if we did not make a profit, so we will take a margin from the assignment rate we receive from your Agency.

  • Gross rate of pay

Your gross rate of pay is the assignment fee minus the Umbrella margin and employment tax and other legally-required deductions.

  • Company costs

This includes items such as Employers’ National Insurance which all UK employers must pay; the Apprenticeship Levy; Employer’s Pension Contribution (if you have opted-in to the company pension scheme) and holiday pay you have accrued.


There are also deductions which apply to all employees including Umbrella employees under UK law.


  • Income tax

Most people in the UK are able to receive a portion of their income tax-free.  The current rate (2019/20) is £240 per week.  The remaining income is known as taxable pay and is subject to income tax at 20% (basic rate).  Anything you earn above £962 per week is taxed at 40%.

  • Employees’ National Insurance

As you are an employee, you have to pay National Insurance, currently at a rate of 12% on income between £166 and £962 per week (from 16 until state pension age). Earnings above £962 per week are subject to 2% National Insurance.


The impact on your take-home pay

As your gross pay level increases, the amount taken in National Insurance and tax also goes up. This means the amount of take-home pay you get as a percentage of the assignment rate actually falls.

These are the rules all compliant Umbrella companies have to comply with. So, if you are offered take-home pay of more than 85%, then something is wrong, and it’s likely that your Umbrella is not following the rules.

Usually, non-compliant Umbrellas deduct things from the contractor’s gross pay before they calculate the tax that’s due. That way, the contractor pays a bit of tax, though this tax payment is simply intended to make you feel comfortable with the arrangement (as you would be suspicious if you didn’t have any tax to pay). What you’ll find later is that you’re not paying enough tax for the gross pay you’ve received.

Choosing a compliant Umbrella company

These non-compliant schemes are nothing new but given the pending change to IR35 in the private sector we can expect to see more coming to market, making life even more confusing for contractors.

As well as understanding what your take-home pay should be, you can safeguard yourself by choosing an FCSA accredited Umbrella company, like Crest Plus.

Need further help?

We appreciate it can be confusing to work out what your take-home pay should be.  Please get in touch with our expert contractor accountants for a free, no-obligation pay illustration which will show you how your specific take-home pay should be calculated.

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