If you’re using an umbrella company and wondering where your money goes, you’re not alone. It might feel like someone’s nibbling at your payslip before it even hits your account. Let’s break it down and make sense of the math behind your net pay.
Why it’s important to know the numbers
Umbrella companies don’t just hand over your full day rate. They deduct costs, apply taxes, and then send you what’s left. Knowing how this works helps you check if you’re being paid right and stops you from falling for too-good-to-be-true promises.
Let’s start with your rate: it’s not your salary
Your agency gives the umbrella company a payment called the assignment rate. This includes more than just your take-home. It’s got to cover employer costs and admin fees too. So even if you’re told you’re getting £300 a day, that doesn’t mean £300 lands in your account.
Here’s the step-by-step calculation
Step 1: The assignment rate
This is the top figure—the full amount your agency or client pays the umbrella. It’s not your wage. It includes things like employer’s National Insurance, pension costs, the company’s margin, and a few extras. Think of it like a big pizza that gets sliced up before you get your share.
Step 2: Deduct employer costs
Now the umbrella removes all employer-related costs from the assignment rate.
- Employer’s National Insurance
- Apprenticeship Levy
- Workplace pension (employer side)
- Holiday pay (set aside but technically yours)
- Umbrella company margin
Once these get sliced off, what’s left is your gross salary before tax.
Step 3: Now your gross pay is taxed
Your gross taxable salary then goes through PAYE just like a regular job. The following deductions are taken:
- Income tax (based on your tax code)
- Employee National Insurance
- Pension contributions (if you’ve not opted out)
- Student loan (if you earn enough to trigger repayment)
Once that’s all done, what’s left is your take-home pay. That’s what hits your bank.
Here’s how it might look in real life
| Stage | Example Breakdown |
|---|---|
| Assignment Rate | £300 per day |
| Employer Costs + Fees | £75 (NI, levy, margin) |
| Gross Pay | £225 |
| Income Tax | £45 |
| Employee NI | £23 |
| Pension + Student Loan | £7 |
| Take-Home Pay | £150 |
The example changes depending on your tax code, pension, student loan, and personal circumstances. But the logic stays the same.
What can change your final take-home pay?
Tax code
Your tax code controls how much income tax you pay. If it’s wrong, your deductions will be off.
Most people have 1257L as their tax code. But if you earn over £100,000 a year, your personal allowance shrinks. Some umbrella companies forget this and show inflated estimates. Always double-check it.
Workplace pension
If you don’t opt out of auto-enrolment, 5% of your gross salary goes into a pension pot. That lowers your take-home, but it’s still your money. Some umbrella payslips hide this in the fine print, so it’s worth checking.
Student loan repayments
Depending on your repayment plan, a slice of your salary goes toward your student loan once you pass a threshold. This comes out after tax and NI. It’s often left out in sample payslips, which makes them look better than reality.
Not working every week
Umbrella calculators often assume you’re working 52 weeks a year, which most people don’t. Take off holidays, sick days, contract gaps—it all adds up. If you’re comparing umbrellas, make sure they’re not using full-year figures to lure you in.
Watch out for sneaky practices
Hidden margin tricks
Some umbrellas say they only charge £15 a week, but the real cost could be higher. They might adjust your holiday pay or use a lower tax code to make your take-home seem better. Don’t fall for a shiny payslip—ask for the full breakdown.
Fake expenses in the quote
Since 2016, most contractors can’t claim travel or food costs because of SDC rules (Supervision, Direction, and Control). But some umbrellas still show “reimbursed expenses” in the example payslip. That’s usually just a way to pump up the net pay figure.
Too-good-to-be-true estimates
If someone promises you 80% take-home while working through an umbrella company, that’s a red flag. After tax, NI, and other deductions, most contractors end up with 60–65%. Anything beyond that should raise questions.
How to make sure you’re not being short-changed
Look closely at your payslip
You want to see:
- The assignment rate
- Employer costs deducted
- Gross taxable pay
- Statutory deductions (tax, NI)
- Net pay (final take-home)
If any of these are missing or unclear, ask your provider for details. It’s your money—you deserve transparency.
Use a reliable calculator
We offer a free umbrella calculator that gives you an instant sample payslip based on your actual day rate. It includes tax, NI, pension, and other key deductions so you can see the real picture upfront.
You’ll also get your Key Information Document (KID), which breaks down everything you’re supposed to be paid before you even sign up.
Use the official HMRC calculator
If you’re not sure whether your take-home adds up, HMRC has a basic tool that lets you estimate PAYE tax and NI. It’s not umbrella-specific, but it’s a good way to double-check your numbers.
Ask for the Key Information Document
Every umbrella company has to give you a KID before your first payment. If they don’t—or if it’s vague or confusing—that’s a sign to walk away. The KID should clearly show your assignment rate, expected deductions, and net pay.
Recap: how your umbrella pay is worked out
It all starts with your assignment rate, which includes your salary plus employer costs. The umbrella takes out employer NI, the levy, and their fee. You’re left with gross pay. Then HMRC takes tax and NI from that, plus any pension or student loan. Whatever’s left goes to you.
There’s no magic trick to it. Every umbrella works under the same rules. The only difference is how clearly they explain it—and whether they try to make it look better than it really is.
If you’re unsure who to trust, stick with a reputable award winning umbrella company that shows you all the numbers upfront and doesn’t cut corners.
Final thoughts
Understanding how your pay is calculated isn’t just helpful—it’s necessary. When someone else handles your money, you need to know how they do it. Don’t leave it to guesswork. Check your payslips, use real calculators, and question anything that looks off.
You’re not asking for special treatment. You’re just asking to see where your money goes. And that’s fair.
