On our blog, we’ve explained what an umbrella company is, how it works and what a worker’s rights are. Which brings us to umbrella company pay.
Calculating a worker’s rate of pay can get quite complex. So much so, that workers can often feel as though they’ve been short-changed by an umbrella company.
This issue arises when agencies and umbrella companies fail to tell the worker the correct rate of pay and instead promise an amount that although sounds attractive is actually misleading. In this blog post, we’re going to break down how payment works and what, as a worker, you should be entitled to.
If an agency pays you directly
This is the best place to start when it comes to explaining rates of pay. If you are paid by an agency directly, then the rate the agency offers you (commonly known as the PAYE rate) is the amount, before tax and National Insurance Contributions (NICs), that you should receive.
So, if you have a PAYE rate of £9.50 per hour and work 35 hours per week, your gross taxable pay will be £332.50. In the same way, it works for all employees, tax and NICs are deducted, leaving you with a net amount.
However, £9.50 is not the true cost to the agency as they have to pay Employers’ NIC, holiday pay, the apprenticeship levy and contribute to a workplace pension. So, the actual cost to the agency for taking you on could be somewhere in the region of £12 (which is what they charge to the end client) per hour even though your rate remains unaffected at £9.50 per hour.
If an umbrella company pay you
With the above in mind, when an agency passes you over to an umbrella company, they pass the umbrella company the FULL costs of your employment, i.e. the £12 per hour. This is commonly known as the limited company rate or the contracting income of the umbrella company.
The problem comes when an unscrupulous umbrella company doesn’t explain how this works. Often, they will instead try to lure you in by promising an hourly rate of £12, knowing full-well the rate you see is £9.50. This explains why many workers become disheartened or feel they’ve been ‘scammed’ when they see their first payslip.
Remember that a reputable umbrella company will explain precisely how this works. Agencies aren’t off the hook either; it’s up to them to refer to the agreed rate as the ‘umbrella contracting rate’ and NOT as your gross pay.
The Mango Pay blog will reveal more in the weeks to come with regard to umbrella companies pay and more. We’ll talk about umbrella companies: your rights and entitlements, and what to look out for when choosing one. Read more about our umbrella solutions, or contact a member of our friendly team for no-obligation advice and guidance.