Working through an umbrella company is now the default option for many UK contractors, but confusion around employment rights remains widespread. Too often, contractors are unsure what they are entitled to, who their employer really is, and whether their umbrella company is operating compliantly.
If you are paid through an umbrella company, you are an employee. That status gives you specific legal protections under UK employment law. Understanding your umbrella employment rights helps you protect your income, avoid tax risk, and choose a compliant umbrella company with confidence.
What does employment through an umbrella company mean?
When you work through an umbrella company, you are employed under a contract of employment. The umbrella company is your legal employer, even though you perform work for an end client via a recruitment agency.
You are paid through PAYE, with Income Tax and National Insurance deducted at source. This employment relationship is what gives rise to your umbrella company employment rights. You are not self-employed, and you should not be treated as such.
Any umbrella company that suggests you do not have employment rights should be approached with caution.
Your right to fair and lawful pay
Umbrella employees must be paid at least the National Minimum Wage or National Living Wage for all hours worked.
A compliant umbrella company will:
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Pay you through PAYE
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Deduct tax and National Insurance correctly
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Provide a clear, itemised payslip
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Show their margin transparently
Your payslip should clearly explain how your assignment rate is broken down. If deductions are unclear or your take-home pay seems unusually high, this may indicate non-compliant practices.
UmbrellaCompanies.org.uk regularly highlights the importance of payslip transparency when comparing umbrella providers.
Holiday pay under an umbrella company
Holiday pay is one of the most important umbrella employment rights and one of the most commonly misunderstood.
As an umbrella employee, you are entitled to 5.6 weeks of paid holiday per year, which equates to 28 days for a full-time worker. This entitlement is pro-rated for those working irregular hours.
Holiday pay may be handled in one of two ways:
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Accrued holiday pay, which builds up and is paid when you take time off
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Rolled-up holiday pay, which is paid alongside your wages and clearly shown on your payslip
Holiday pay must be explained in your contract and visible on your payslip. It should never be withheld or lost without explanation.
Statutory Sick Pay (SSP)
Umbrella employees may be entitled to Statutory Sick Pay if they meet the eligibility requirements. This usually depends on your earnings and the length of your absence.
Your umbrella company should have a clear sickness reporting process and be able to explain when SSP applies. Suggesting that umbrella workers are not entitled to sick pay is incorrect.
Pension rights and auto-enrolment
Umbrella companies must comply with UK workplace pension legislation.
If you meet the age and earnings thresholds, you must be automatically enrolled into a pension scheme. Both you and the umbrella company will make contributions, and you have the right to opt out if you choose.
You should receive pension information shortly after starting employment. Failure to provide this may indicate non-compliance.
Written contracts and employment terms
You are entitled to receive written employment terms confirming:
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Your employment status
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How and when you are paid
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Holiday entitlement
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Notice periods
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Any lawful deductions
This contract protects both you and the umbrella company. If documentation is vague, delayed, or missing altogether, that is a concern.
UmbrellaCompanies.org.uk recommends always reviewing contracts carefully before starting work.
Protection from unlawful deductions
An umbrella company cannot deduct money from your pay unless the deduction is:
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Required by law, or
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Clearly stated in your contract and agreed by you
Hidden fees, unexplained charges, or inflated deductions may be unlawful. You have the right to challenge them and request a full breakdown.
Equal treatment under agency rules
Umbrella employees are also covered by the Agency Workers Regulations.
After 12 weeks in the same role, you may be entitled to equal pay and basic working conditions compared to a permanent employee doing similar work.
Your recruitment agency and umbrella company should support compliance with these regulations.
Common umbrella company issues to watch out for
Some umbrella companies do not operate compliantly. Warning signs include:
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Payslips that are difficult to understand
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Holiday pay that is never paid
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Pressure to join loan or offshore schemes
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Claims that you are “not really employed”
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Promises of unusually high take-home pay
These practices can expose contractors to tax and legal risk.
What to do if your umbrella employment rights are ignored
If you believe your umbrella employment rights are being breached, raise the issue in writing and ask for clarification. Keep copies of your contract, payslips, and correspondence.
In many cases, switching to a compliant umbrella company is the safest and simplest solution.
UmbrellaCompanies.org.uk provides guidance to help contractors identify reputable providers.
Why understanding umbrella employment rights matters
Focusing only on take-home pay can be a costly mistake. Understanding your umbrella employee rights helps you avoid non-compliant providers, protect your income, and reduce tax risk.
A reputable umbrella company will be transparent, compliant, and willing to explain how your pay and rights work.
