Employer’s National Insurance: Why Umbrella Workers End Up Paying It
One of the most common frustrations umbrella company workers face is the deduction of Employer’s National Insurance (NI) from their pay. On the surface, this feels unfair – after all, it’s called “employer’s” NI, so why are contractors effectively footing the bill?
In this article, we’ll break down how the system works, why these costs fall on umbrella workers, and what you can do to make sense of your umbrella company payslip.
What is Employer’s National Insurance?
National Insurance is a tax on earnings that funds state benefits, including the NHS, pensions, and maternity allowance.
There are two main types relevant to umbrella workers:
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Employee’s NI – what you personally pay.
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Employer’s NI – what a company must pay on top of your salary if they employ you.
The current Employer’s NI rate (2025) is 13.8% on earnings above £9,100 per year.
Why Umbrella Workers See Employer’s NI Deducted
When you work through an umbrella company, you are technically employed by the umbrella provider. However, the recruitment agency or end client pays the umbrella company an assignment rate, not a salary.
Here’s the crucial point:
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The assignment rate is designed to cover all employment costs – including Employer’s NI, the Apprenticeship Levy, holiday pay, and the umbrella margin.
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Only after these deductions does the umbrella process your taxable salary.
This means that Employer’s NI isn’t an “extra” charge – it’s simply deducted from the rate the agency/client pays.
Example Breakdown
Let’s say an agency pays your umbrella company £300 per day:
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£300.00 – Assignment rate
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£41.40 – Employer’s NI
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£3.60 – Apprenticeship Levy
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£15.00 – Umbrella margin
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= £240.00 – Taxable gross salary (before Employee’s NI and Income Tax)
When you later see Employer’s NI listed on your payslip, it looks like you’re paying it directly. In reality, it’s already been factored into the rate agreed with your agency.
Why It Feels Unfair
Many contractors feel short-changed because:
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Job adverts often fail to explain the difference between the assignment rate and the actual take-home pay.
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Agencies sometimes present the assignment rate as if it were a “salary,” leading to confusion when deductions appear.
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The name “Employer’s NI” suggests it should be covered by the umbrella company, not the worker.
This lack of transparency is one of the biggest criticisms of the umbrella company industry.
What Contractors Can Do
While you can’t avoid Employer’s NI deductions under an umbrella arrangement, you can:
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Ask for a Key Information Document (KID) before accepting a role – this should set out all expected deductions. The Umbrella Company Glossary has more detail.
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Request a pay illustration from the umbrella, so you know your estimated take-home pay in advance.
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Check the payslip format – a compliant umbrella should show all deductions clearly.
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Compare providers – our Top 10 Umbrella Companies list is a good starting point.
Alternatives to Umbrella Working
If the idea of paying Employer’s NI through an umbrella feels unpalatable, consider your options:
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PAYE agency payroll – for some contracts, the agency may put you directly on their payroll.
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Limited company contracting – still an option for roles genuinely outside IR35, though compliance is critical.
Final Thoughts
Employer’s National Insurance is a cost that all employers must pay. But under umbrella arrangements, it’s passed back to the worker via the assignment rate.
While this can feel unfair, it’s standard practice across the sector. The key is to understand the deduction process, demand transparency from agencies and umbrellas, and make sure you’re comparing like-for-like pay illustrations before committing to a role.
