What deductions appear on umbrella company payslips?

What deductions appear on umbrella company payslips?

When you’re paid through an umbrella company, you’ll receive a payslip that’ll show similar deductions to an employee in a permanent position. However, there are a few key differences that you need to be aware of. Keep reading and we’ll explain what deductions appear on an umbrella company payslip.


Umbrella companies will deduct a margin from your gross salary and this covers the administration and business cost involved in their operations. Usually, a margin is deducted weekly or monthly – depending on your payment frequency. Margins vary between different umbrella companies, but usually, they’re between £15 and £25 per week (£65 and £120 per month). Don’t forget – there are plenty of benefits available to you as an employee of an umbrella company.

Income Tax

When you work through an umbrella company, you will be paid in accordance with HMRC’s tax system called Pay As You Earn (usually shorted to PAYE).

You are required to pay income tax on all earnings above your Personal Allowance (£12,500 – providing you are eligible for total amount). Any income earnt above your Personal Allowance will be taxed at the following rates:

  • £12,501 – £50,000 – 20% (basic rate of income tax)
  • £50,001 – £150,000 – 30% (higher rate of income tax, eligible on earnings over the basic rate)
  • Over £150,000 – 45% (additional rate of income tax, eligible on earnings over the higher rate)

Employee’s National Insurance

Because you’ll become an umbrella company employee, you’ll see Employee’s National Insurance Contributions deducted on your payslips. You’ll be eligible for Class 1 contributions, which are as follows:

  • On earnings that are between £183 and £962 per week (£792 to £4,167 a month) – 12%.
  • On earnings above £962 per week (£4,167 a month) – 2%

Employment Costs

Umbrella companies exist to process your payroll, and as summarised above, they receive a small margin to cover their business costs. Therefore, umbrella companies cannot afford to cover the Employment Costs – or they wouldn’t exist. Therefore, employment costs (Employer’s National Insurance Contributions and the Apprenticeship Levy) are deducted from the assignment rate and will appear on your umbrella company payslips. Employer’s National Insurance Contributions are calculated at 13.8%, and the Apprenticeship Levy is calculated at 0.5%.

Employment costs should be taken into account when you are negotiating your rate of pay with a recruitment agency or end-client. As these will be passed on to you and deducted from the assignment rate, make sure you’re happy with the agreed assignment rate before committing to a role. Don’t be misled into believing you’ll retain more of the assignment rate than you actually will. If you have any questions about this – speak with your agency and end-client, and do not sign any contracts until you’re entirely happy with the rate you’ve negotiated.

Holiday Pay

When you work through an umbrella company, you’ll see Holiday Pay on your payslip. However, you will not be given an additional 12.07% by the umbrella company. Instead, this 12.07% is a reallocation of your own funds and comes from the assignment rate. Therefore, you need to ensure you’ve allowed for any money you want to put towards holidays in your assignment rate before agreeing to a contract role. Holiday Pay has to be shown on your payslip because it’s a legal requirement. You are no better or worse of.

Additional deductions

Pension Contributions

Umbrella companies are legally required to enrol you into a pension scheme. However, it’s up to you if you remain enrolled, or if you opt out. IF you remain enrolled, pension contribution deductions will be visible on your payslip.

Student Loan

If you are currently paying back a student loan, you will notice that student loan repayments are deducted from your salary.

Looking for an umbrella company you can trust?

We hope this article has helped you understand what deductions appear on umbrella company payslips. To help make your life easier, we’ve collated a top 10 umbrella companies list. All umbrella companies in our top 10 are accredited by the FCSA – so you can be assured you’re in the very safest hands. And, some of them have some excellent offers on at the moment!

Click here to see our top 10 umbrella companies!

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