There is a common misconception that umbrella companies are raking it in. In reality, the only income that umbrella companies generate is the margin they deduct in exchange for the administrative payroll service they provide. Find out more about how umbrella companies make money in this article.
What is an umbrella company margin?
The umbrella company margin is the income that umbrella companies generate for processing the payroll of temporary workers. Sometimes referred to as the umbrella company’s “fee” (wrongly), the margin is the only income that compliant umbrella companies generate for themselves.
When is the umbrella company margin deducted?
An umbrella company will deduct its margin from the gross pay of a temporary worker. As a result, it costs the worker slightly less because they save on the tax. However, a few misleading umbrella companies have mentioned the net margin to workers – rather than the gross margin. What this does is help the umbrella appear “cheaper” and “better value” because they’re pretending their margin is lower than others, when in fact, it could be slightly higher.
How much is an umbrella company margin?
Umbrella company margins will vary between providers, but they’re usually quoted weekly or monthly. Most commonly, you should expect to see umbrella companies offer weekly margins between £15 and £25 per week, and monthly margins between £60 and £100 per month.
The margin is the only thing that’ll alter your take-home pay retention between compliant umbrella companies because they should all process your payroll in the same way. Therefore, you should expect to pocket a few pounds extra each month if you use an umbrella with a £15 per week margin rather than one with a £25 per week margin.
Disappointingly, it’s become relatively common for umbrella companies to inflate take-home pay calculations as an attempt to win business over the competition. It’s important to remember that all compliant umbrella companies will process payroll in the same way (PAYE). Therefore, it’s only the margin that’ll impact your pay retention between umbrella companies.
However, a word of advice – don’t solely base your umbrella company decision on margin. Check online reviews and make sure the umbrella you’re interested in has received good public feedback, is compliant and will provide you with excellent customer service.
Where are the rest of the deductions on my umbrella company payslip sent?
The margin is the only income that umbrellas retain for themselves. The rest of the deductions that you’ll see on your payslip are sent to HMRC on your behalf – excluding pension contributions (if you remain opted-in to paying into a pension scheme).
Is there any joining or leaving fees associated with umbrella companies?
Compliant umbrella companies will not charge a joining or leaving fee, and you will only be eligible for the margin when they pay you. For example, if you had four weeks off between two separate assignments, no margin would apply for the weeks you weren’t working.
Conclusion
Compliant umbrella companies make money by deducting a margin from employees’ gross pay – before additional deductions are made. This provides you with tax savings. The margin is the only income that umbrella companies generate for themselves and covers administrative costs, staffing, ongoing costs, etc. All the other deductions that you will see on your umbrella company payslip are sent to HMRC on your behalf (unless you remain opted into pension contributions).
Top 10 umbrella companies
If you’re looking for a trustworthy and compliant umbrella, you’ve come to the right place. We have collated a list of our top 10 umbrella companies, and we recommend you check it out. Every top 10 umbrella company is accredited by either the Freelancer and Contractor Services Association (FCSA) or Professional Passport. It’s also worth noting that some have special offers at the moment.
