Want a hassle-free umbrella service?
Ovations manage the complexities and day-to-day tasks of payroll, so you can focus on running your business.
Hi I am Rebecca, an umbrella contractor!
Ovations helps me be more productive
- I always get paid on time
- My tax responsibilities are taken care of
- I can concentrate on contracting
Rebecca Doe Smith
An Umbrella Company is a company that acts as an employer for contractors working on fixed-term contracts. They act as an intermediary between the contractor and their end client or agency. Its primal function is to organise payment for the contractor. To do this they collect the contractor’s earnings from the end client or agency and then pay it onto the contractor after deducting Taxes and National Insurance Contributions.
Umbrella clients are paid in a similar way to permanent employees (PAYE). As a result, the umbrella company will deduct Tax and Employee National Insurance Contributions from your pay. These will be sent to HMRC. As an umbrella employee, you’ll also be responsible for employment costs, including the Apprenticeship Levy and Employer’s National Insurance Contributions.
Additional deductions that you will see on your payslip will include Holiday Pay (which is simply a reallocation of your own pay), student loan repayments (if applicable) and pension contributions (if you choose to remain in our chosen pension plan).
All deductions made from your payslips will be:
- Employee National Insurance Contribution
- Employer’s National Insurance Contribution
- Holiday Pay (if accrued)
- Pension (if applicable)
- Umbrella Margins
- Student Loan (if applicable)
The umbrella margin is the amount an umbrella retains each week/month from the funds it receives from an agency or client. This is agreed in advance with the agency or client.
You should know the Umbrella margins before starting with the umbrella company, this should also be include in the Pay Illustration you receive from the umbrella company .
When an umbrella company contracts with and receives funds from an agency or client the funds are used:
- Firstly to cover its margin
- Secondly to cover employer taxes being Employer’s NI and Apprenticeship levy
- Thirdly to cover a contractor’s pay and holiday pay
There is no separate fee to the agency/client or the contractor. The margin received by the umbrella company is used to cover its own costs, including staffing, IT, processing fees, property overheads and bank charges, contractor insurances and also to pay for other costs such as SSP and SMP.
insurances and also to pay for other costs such as SSP and SMP.
For more information on the why a contractor pays Employers National Insurance then please visit our blog article: Do Contractors pay Employers National Insurance?
Who pays National Insurance National Insurance is a tax paid by employees, employers and the self-employed: employees...
For contractors, deciding whether to charge hourly or daily rates is an important decision however...