How do umbrella companies make a profit?

As a contractor, you may wonder, how do umbrella companies make a profit? The only income umbrella companies generate is the margin they deduct when processing a contractor’s payroll. Continue reading to find out more about how umbrella companies make a profit.

How do umbrella companies make a profit?

As a business, umbrella companies need to be able to make money to cover operating costs and to pay their staff. So, how do umbrella companies make a profit? Umbrella companies make a profit by retaining a margin each time they process payroll for a temporary worker. The margin is deducted from the contractor’s gross pay – before taxes are deducted. This provides you with tax savings.

The margin covers the umbrella companies’ overheads, and the margin is the only income compliant umbrella companies generate for themselves. All other deductions made to a contractor’s pay are required by law and are tax deductions, which are deducted and paid directly to HMRC (or the required government body). It is also important to note that the umbrella company does not set the tax due to be deducted from a contractor’s pay – HMRC sets these.

An umbrella company margin will vary between providers and is charged weekly or monthly – depending on your payroll. You can expect a weekly umbrella margin to be between £15 – £30 and a monthly margin to be between £60 – £100. The margin is the only thing that will alter your take-home pay between compliant providers, as they should all process your pay via PAYE and make correct deductions as per UK tax law.

Be careful of illegitimate umbrella companies who make a profit from contractors  

Sadly, there are a number of umbrella companies that illegitimately profit from contractors by retaining money from the workers’ pay when they should not. A few umbrella companies have been accused of salary skimming to boost their profits. Salary skimming is when an umbrella company retains more than its margin and hides the unethical deductions from an employee’s payslip, resulting in the worker losing some of their hard-earned money.

Some umbrella companies also wrongly profit from contractors and freelancers by retaining their holiday pay. You must only use a compliant umbrella company, which will pay you compliantly to ensure you receive all your hard-earned money.

SafeRec is revolutionising transparency within the industry

SafeRec is an AI-powered software that provides contractors and freelancers with a level of transparency that has never been seen before. Every SafeRec-certified umbrella company payment is audited in real-time and cross-referenced with RTI sent to HMRC.

If umbrella companies are salary skimming, retaining money that they shouldn’t, or not making the correct tax deductions, SafeRec highlights this immediately and notifies the whole supply chain (contractor, recruitment agency, and umbrella company).

Each time a contractor is paid, they are also sent a payslip audit report, which allows them to check that they are being paid compliantly. By using a SafeRec-certified umbrella company for your payroll, you can get paid with complete peace of mind that you are only using compliant umbrella companies that make a profit from the margin and the margin only.

Churchill Knight Umbrella is committed to compliance

Churchill Knight Umbrella is a SafeRec-certified, FCSA-accredited, and leading PAYE company that provides contractors and freelancers with a compliant and efficient payroll service. You can rest assured that you are in the safest hands and will receive trustworthy service. From registration and throughout your time with us, we have dedicated teams to provide helpful information and support and answer any questions.

To request a tailored take-home pay calculation or begin the registration process, please call our Sales Consultants on 01707 871622. You can also request a callback for a time that suits you, and a team member will contact you to discuss the service.