Contractors new to umbrella companies or transitioning from limited company work often ask, “What is an umbrella company margin?” This article explains the umbrella margin, how it’s deducted, and what impact it has on your take-home pay.
What is an Umbrella Margin – and Where Does Your Money Go?
If you’re working through an umbrella company, you may have come across the term umbrella margin on your Key Information Document (KID) or in your pay illustration. But despite how common it is, many contractors are unsure what it actually means — or how it affects their take-home pay.
The umbrella margin is the amount an umbrella company retains each week or day for providing payroll and employment services. This is their fee for handling your PAYE tax, managing your payslips, offering statutory employment rights (such as holiday pay and pension enrolment), and taking care of ongoing administration.
The umbrella company doesn’t deduct the margin from your gross pay. Instead, it takes the margin directly from the assignment rate it receives from your recruitment agency or end client, before calculating your taxable salary.
How the assignment rate is used
When you agree to a contract through an umbrella company, your agency pays an assignment rate. This is not the same as your salary. Instead, it’s a combined figure that must cover all employment costs — including the umbrella’s margin.
Once the umbrella receives the assignment rate, they retain their margin and then set aside money for employer’s National Insurance, the Apprenticeship Levy, and any holiday pay provisions. The umbrella company uses what remains to calculate your gross salary, which it then taxes through PAYE as standard. For more information about the deductions that will be made to your pay when working via an umbrella company, please visit the government’s website.
That’s why your gross pay is lower than the full assignment rate, the umbrella deducts employment costs before working out your salary.
How much is a typical umbrella margin?
Umbrella margins vary depending on the provider. Most companies charge a flat weekly fee ranging from £15 to £30, or a monthly margin of around £65 to £130. The margin should be fixed and clearly outlined in your documentation.
Some umbrellas include extras within the margin, such as same-day payments or insurance. Others may offer reduced rates for longer contracts or higher-value assignments.
Although the margin doesn’t come out of your net pay directly, a higher margin means there’s less left in the assignment rate to become gross salary — so it can still impact your overall take-home pay.
What does the margin actually cover?
The margin pays for all the operational and compliance costs of running the umbrella company. This includes payroll processing, tax submissions to HMRC, handling statutory payments, issuing payslips, managing your pension contributions, and providing customer support.
Some umbrella companies offer additional services included in the margin, such as professional indemnity or public liability insurance, employee benefits platforms, or faster payments. However, not all do — and it’s worth checking exactly what’s covered before you sign up.
Why transparency matters
Every umbrella company should clearly display its margin in both your Key Information Document and any pay illustration. If you don’t see it, or if additional deductions appear on your payslip without explanation, you should raise this with the provider immediately.
Lack of transparency around deductions is one of the most common warning signs of non-compliance. Make sure you fully understand what the umbrella company is charging you and that the margin represents fair value for the service they provide.
Choosing a provider with FCSA accreditation or SafeRec certification gives you extra confidence, as both organisations actively audit and verify payroll processes to maintain transparency and legal compliance.
What your margin gets you with a top 10 umbrella company
If you’re comparing umbrella companies, it’s helpful to understand exactly what you’re getting in return for the margin they charge. All of the providers featured in our Top 10 umbrella companies list offer fully transparent services with no hidden fees and full compliance with UK tax and employment law.
To make the process easier, you can request a free take-home pay calculation from one of our trusted Top 10 providers.
It only takes a moment to complete our short form. Once submitted, a representative from a Top 10 umbrella company will get in touch to explain how their service works, answer any questions, and provide you with an accurate, personalised take-home pay illustration.
