Working through an umbrella company means you are paid as an employee. PAYE handles your tax and National Insurance. But umbrella pay does not work like a normal salary. This guide explains the full process using 2026-27 rates.
DASA Umbrella holds dual accreditation from FCSA and Professional Passport. Both are the UK’s main compliance standards for umbrella companies. Start with a compliant umbrella company that’s FCSA and Professional Passport accredited.
How does umbrella pay work?
Your agency or client pays an assignment rate to your umbrella. The umbrella takes out employer costs, its margin, and your holiday pay. What is left becomes your gross pay. That gross pay then goes through PAYE like any other employee’s pay. The key point is simple: your assignment rate is not your gross salary. It is the total pot the umbrella works with. For a full breakdown, read our guide on how umbrella take-home pay is calculated.
Your client or agency agrees an assignment rate with your umbrella. Think of it as a pot of money. The umbrella takes its costs and margin first. What is left becomes your gross pay. PAYE then applies to that amount.
Holiday pay comes out of the same pot too. With rolled-up pay, the amount appears on each payslip as a separate line. With accrued pay, the umbrella holds it back and pays it when you take leave.
What gets deducted from your pay?
Before PAYE even starts, the umbrella takes out:
- Employer National Insurance contributions (15% in 2026-27)
- Apprenticeship levy (0.5%)
- The umbrella’s margin (usually a fixed weekly or monthly fee)
- Holiday pay (either rolled-up or accrued)
These come out of the assignment rate. What is left becomes your gross pay. Income tax and employee NIC then come off that.
Income tax rates 2026-27
The personal allowance is £12,570. You pay 20% tax on earnings between £12,571 and £50,270. Between £50,271 and £125,140, you pay 40%. Above £125,140, you pay 45%. These are the standard UK rates for 2026-27.
Most contractors on £200 to £500 per day fall into the basic or higher rate band. If your earnings go above £100,000, your personal allowance tapers. It falls by £1 for every £2 over £100,000.
Your umbrella applies these rates through payroll in real time. Your tax code tells the umbrella how much personal allowance to give you. Check your payslip to make sure it is correct.
| Band | Income | Rate |
|---|---|---|
| Personal allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 to £50,270 | 20% |
| Higher rate | £50,271 to £125,140 | 40% |
| Additional rate | Above £125,140 | 45% |
National Insurance rates 2026-27
Employee NIC is 8% on earnings between £12,570 and £50,270. Above £50,270, it drops to 2%. These are the employee rates shown on your payslip. Employer NIC is separate. It comes out before your gross pay is set. For the full picture, read our guide to National Insurance for umbrella contractors.
Employee NIC starts at the Primary Threshold, which is £12,570 a year. That is the same as the personal allowance. You do not pay NIC on earnings up to that point.
The 2% rate above £50,270 means higher earners pay less NIC on earnings above that line. NIC does not reduce your personal allowance.
How does employer NIC affect your take-home?
Employer NIC is 15% of your gross pay above £5,000 per year. The umbrella pays it. But it comes out of your assignment rate before gross pay is set. So employer NIC cuts what is left for your take-home.
This is the part that surprises most contractors. You do not pay employer NIC directly. The umbrella pays it, but funds it from your assignment rate.
Here is the simple version. Say your assignment rate creates £400 of gross pay potential. Employer NIC at 15% is about £52. That leaves £348 for gross pay. Tax and employee NIC then come off the £348.
The rate went up from 13.8% to 15% in April 2025. That increase cut take-home for most contractors. It was not a DASA change. It was a government change that applies to every umbrella in the UK.
Holiday pay: how it works
You are entitled to 5.6 weeks of paid holiday each year as an umbrella worker. Umbrella companies handle this in two ways. Rolled-up holiday pay adds 12.07% to each payslip. Accrued holiday pay holds the money back and pays it when you take time off. Both are legal, but the method changes how your payslip looks.
Since the Harpur Trust ruling in 2022, irregular-hours workers must use a 52-week average. The 12.07% flat rate no longer applies to accrued pay. Umbrella companies cannot use the flat 12.07% rate for accrued holiday anymore.
From 2027, the Fair Work Agency (FWA) will have full enforcement powers over holiday pay. It launched on 7 April 2026. That means HMRC-style investigations into holiday pay underpayments will be possible.
Make sure you know which method your umbrella uses. Ask them directly if it is not clear on your payslip. Read more in our guide to umbrella company holiday pay.
Pension and salary sacrifice
You are automatically enrolled into a workplace pension as an umbrella worker. The minimum employer contribution is 3% and the minimum employee contribution is 5%. You can increase your pension through salary sacrifice, which lowers your taxable pay and saves income tax and NIC.
Salary sacrifice works by moving part of your gross pay into your pension before tax. You pay tax on a lower figure. You save income tax at your marginal rate and employee NIC as well.
There is a limit though. Your umbrella must keep your assignment rate above the National Minimum Wage after sacrifice. The NLW rate is £12.71 an hour in 2026-27. If you sacrifice too much, the umbrella has to cap it.
Read our salary sacrifice and your pension for the full breakdown.
What does your umbrella margin cover?
The umbrella margin is the fee your umbrella keeps. It covers payroll processing, employer compliance obligations, insurance, and the cost of acting as your employer. DASA Umbrella charges a fixed margin. You will see it as a deduction on every payslip.
A compliant umbrella’s margin is transparent. You should see exactly what you are being charged. If it is buried or unclear, that is a warning sign.
DASA holds both FCSA and Professional Passport accreditation. That means two independent bodies have audited our compliance processes. Read our guide to what makes an umbrella company compliant.
The margin is a fixed fee, not a percentage of your earnings. That keeps it simple and predictable.
How do you check your take-home pay?
Use DASA’s umbrella pay calculator for a quick estimate based on your day rate or hourly rate. It uses current 2026-27 rates for tax, NIC, and employer contributions. You can adjust for pension contributions and holiday pay method too.
Your assignment rate is the key input. Get it from your agency or contract. Then put it into the umbrella pay calculator to see your estimated take-home.
Your actual payslip may vary a little. Your tax code, pension contributions, and holiday pay timing all affect the final figure. The calculator gives you a solid benchmark.
If your actual pay differs a lot from the estimate, check your payslip line by line. Our how to read your umbrella payslip walks you through every deduction.
Frequently asked questions
How does umbrella pay work?
Your agency pays an assignment rate to the umbrella. The umbrella deducts employer NIC (15%), its margin, and holiday pay. What remains is your gross pay. Tax and employee NIC then come off that through PAYE.
What are the income tax rates for 2026-27?
The personal allowance is £12,570. Basic rate is 20% on earnings from £12,571 to £50,270. Higher rate is 40% from £50,271 to £125,140. Additional rate is 45% above £125,140.
What are employee NIC rates in 2026-27?
Employee NIC is 8% on earnings between £12,570 and £50,270. Above £50,270 the rate drops to 2%.
What is employer NIC and how does it affect take-home pay?
Employer NIC is 15% of your gross pay above £5,000. The umbrella pays it but funds it from your assignment rate. This reduces what is available for your gross pay before tax is applied.
What is the umbrella margin?
The margin is the umbrella’s fee for running your payroll and acting as your employer. DASA charges a fixed fee shown clearly on every payslip.
How do I estimate my take-home pay?
Use the DASA pay calculator at dasa-umbrella.co.uk/umbrella-pay-calculator/. Enter your assignment rate or day rate for an estimate at 2026-27 rates.
