There is often a lot of confusion surrounding umbrella company fees, so we wanted to clarify any misunderstandings. This article will explain how umbrella companies make money and what you should expect to retain after the deductions to your gross salary have been made. If you have any questions, please comment below.
Umbrella companies don’t charge a “fee”, but they deduct a “margin”
Compliant umbrella companies do not charge fees but deduct a margin each time they process an employee’s payroll. The margin is the only income the umbrella will retain for itself, and it covers the associated business costs, including traditional overheads.
An umbrella will usually deduct the margin every time they process your payroll, and the amount will vary on your payment frequency. Usually, temporary workers are paid weekly, fortnightly or monthly.
All compliant umbrella companies will process payroll in accordance with Pay As You Earn (PAYE) – HMRC’s tax system. Therefore, the only factor that will impact your pay retention between umbrella companies is the margin they deduct for processing your payroll, and margins vary between umbrellas.
Choosing an umbrella with a lower margin will help you retain more of your salary, but you mustn’t opt for a provider with a competitive margin but poor service. Be sure to carry out due diligence on your potential umbrella company before committing to its service. Most umbrella companies will have a weekly margin between £15.0 and £25.00, a fortnightly margin of £30.00 and £50.00, and a monthly margin of £60.00 and £120.00.
Umbrella companies will deduct their margin from your gross pay (before any taxes are deducted). As a result, you will pay less than the quoted margin. For example, a £25.00 per week margin will likely cost you around £18.00 – £20.00 per week in real terms – depending on your rate of pay and tax code, etc.
What deductions should be made to your gross salary?
When you use an umbrella company for your payroll, you will be paid like an employee in a permanent role, with only a few differences (margin and employment costs – as explained below).
Margin – The umbrella company will deduct a margin from your gross salary before processing your payroll.
Income Tax – PAYE tax will be deducted from your pay.
Employee’s National Insurance Contributions – The employee NICs will appear on your payslip.
Employment costs – Consisting of the Employer’s National Insurance Contributions and the Apprenticeship Levy, the employment costs will also be deductions you see on your payslip. The employment costs should be taken into consideration when you negotiate your assignment rate to ensure you’re not left out of pocket. If you have any questions about the employment costs, you should speak with your staffing agency.
Student Loan Repayments – If you are required to pay back a student loan, you will see these deductions on your payslip.
Pension – If you remain opted into your umbrella company’s preferred pension provider or decide to contribute to a pension through salary sacrifice, these deductions will also appear on your umbrella company payslip.
Summary
Here are some points to consider about umbrella company fees:
- Umbrella companies don’t charge fees, they deduct a margin for processing your payroll. The phrase ‘umbrella company fees’ is misleading.
- Compliant umbrella companies operate PAYE – Pay As You Earn. The only thing that will vary your pay retention between compliant umbrella companies is the margin (for example, choose an umbrella with a lower margin, and you’ll retain a few extra pounds each payment frequency).
- All other deductions on your payslip will be sent to HMRC on your behalf.
- Margins are usually deducted every time payroll is processed – weekly, fortnightly, monthly.
- Usually, weekly margins vary between £15.00 and £25.00, fortnightly margins vary between £30.00 and £50.00, and monthly margins vary between £60.00 and £120.00.
- The umbrella company margin is the only thing that will impact your take-home pay retention because compliant umbrella companies process payroll identically.
- The margin is deducted at gross before additional deductions, including tax, employee’s NIC, employment costs, student loan repayments and pension contributions.
Top 10 umbrella companies
Are you interested in using a reliable and compliant umbrella company? To help make your hunt for a dependable umbrella easier (because there are over 500 in the UK), we’ve collated a list of our top 10 umbrella companies. Every umbrella in our top 10 is accredited by either the Freelancer and Contractor Services Association or Professional Passport – the two leading professional bodies in the UK dedicated to ensuring the supply chain of temporary workers is compliant. Check them out now – some have special offers you won’t want to miss.
