What are umbrella company employment costs?

An area that often confuses contractors is umbrella company employment costs. Continue reading as we provide an overview of umbrella company employment costs, who pays them, and how they are displayed on your payslip.

What are the umbrella company employment costs?

When you register with an umbrella company, you become an employee of that company. As an umbrella company employee, you have access to the same employment rights as other employees. As your employer, the umbrella company is liable for certain employment costs. The employment costs are:

• Employer National Insurance Contributions
• Apprenticeship Levy
• Holiday
• Employer workplace pension contributions (if applicable)
• Umbrella company margin

While you are employed by the umbrella company, they do not benefit from any of the work you complete. The only money they retain is the margin, which is not enough to cover the employment costs. Therefore, the umbrella company employment costs are taken from the assignment rate.

The assignment rate is the rate paid to the umbrella company by your end client or recruitment agency. It is the agreed rate which includes your gross rate of pay and the uplift for the employment costs multiplied by the hours you have worked that week or month. The gross rate of pay is the wages payable to you before tax deductions (Employee National Insurance and Income Tax). Umbrella company employment costs will be clearly listed on your payslip. Please visit the government’s website for more information about the umbrella company’s employment costs and getting paid.

Explanation of the different umbrella company employment costs

Churchill Knight Umbrella will only ever use the money paid to us by your recruitment agency or end client to cover the employment costs, and these deductions will never be taken from your gross rate of pay. We’ve provided a brief overview of the different umbrella company employment costs.

Employers National Insurance Contributions

When you register with an umbrella company, you become an employee, and they will process your payroll in line with the recruitment agency or end client’s terms. An employee is subject to Class 1 National Insurance (NI), which is made up of 2 contributions:

• Employee National Insurance – deducted from the employee’s pay
• Employer National Insurance – paid by the employer

The NIC amounts are:

• Employee National Insurance – 8% / 2%
• Employer National Insurance – 15%

By law, all employers in the UK must pay Employer’s National Insurance on the salary paid to their employees.

Apprenticeship levy

The Apprenticeship Levy is a government deduction to fund new apprenticeship schemes in the UK. All employers in the UK with an annual turnover of over £3 million must contribute 0.5% to this fund.

Holiday pay

Holiday pay is calculated at 12.07%* of your taxable income. Most contractors choose to have their holiday pay paid out, meaning the holiday pay allocation is paid to them each payday alongside their normal salary. It is also possible to accrue holiday pay and have it paid to you in a lump sum at a later date.

Technically, holiday pay is not a deduction as it is reallocated and paid back to you or accrued until you request it. However, legally, we must display holiday pay separately on your payslip.

*12.07% represents the government standard holiday entitlement for a contractor working 52 weeks. However, due to the nature of contracting, we may deduct up to 25% of gross payment to allow for the provision of holiday pay.

Employer workplace pension contributions

It is a government requirement for employers in the UK to provide and enrol their employees into a workplace pension scheme. However, you can opt-out if you do not want to contribute to the workplace pension scheme. If you do want to contribute to the workplace pension scheme, the deductions are:

• Employee workplace pension contributions – 5%
• Employer workplace pension contributions – 3%

Umbrella company margin

Churchill Knight Umbrella will retain its agreed margin before calculating your taxable income. The retained margin covers the processing of your payroll, and the only amount Churchill Knight Umbrella will retain for itself is the agreed margin.

By retaining the margin before taxable income, the cost to you is slightly less because it reduces your tax liability.

Contact us for a take-home pay illustration

Churchill Knight Umbrella is an FCSA-accredited umbrella company, and we believe in complete transparency. From the initial enquiry to your time with us, we will provide you with an informative service. Our expert Sales Consultants will explain each deduction and provide you with a tailored take-home pay calculation.