VIDEO: Umbrella Pay Explained
Umbrella Pay Explained
Working via an Umbrella company can be complicated at first, especially if you’re used to working through your PSC. Payments are processed differently and you’ll have more tax to pay.
In the video below, Chris James, Director of Accountancy Services at JSA, provides a simple explanation on how Umbrella pay is calculated, detailing the necessary deductions for tax and National Insurance contributions.
Hi, I’m Chris James, Director of Accountancy Services at JSA.
We’re one of the UK’s largest Umbrella companies, serving thousands of contractors in a range of sectors. We’ve provided Umbrella services for almost 30 years and pride ourselves on great service and complete compliance.
Compliance really matters to us, which is why we’re long-standing members of the FCSA, the Freelancer and Contractor Services Association, and I’m currently the Chairman.
The purpose of this video is to explain how Umbrella pay is calculated.
Unfortunately, there’s a lot of confusion around umbrella pay, but it’s actually pretty simple.
Being paid by a compliant Umbrella company, like JSA, is very similar to how you would be paid if you were a regular employee. Let me explain.
When you look at your payslip, the first thing you’ll see is your gross pay. Let’s assume this is high enough to trigger income tax and National Insurance Contributions. Before I pass your pay on to you, I deduct income tax and National Insurance and pass them on to HMRC.
As the Umbrella company is your employer, we also have to deduct employers’ National Insurance, and pass that on to HMRC, as well.
On top of that, there are other amounts an employer might have to pay as a legal requirement as well – pension contributions, for example, and the apprenticeship levy.
Anyone who’s paying you as an employee has to comply with these rules as well. If they’re not, or you can’t see how, you should ask yourself if you’re okay with that. You don’t want to find out that someone who’s making deductions from your salary hasn’t done what they should have done with your money.
Now, someone has to do these payroll calculations, produce your payslips, and send information on to HMRC.
And then there are other costs an employer has to meet too: managing an HR or payroll department, some employment law advice from time to time and software and costs like insurance that any office would have. Running an office and managing people has a cost and this has to be covered.
So let’s re-cap.
As your Umbrella company, JSA is your employer, so we pay you a gross salary.
Income tax and employees’ National Insurance comes out of that.
On top of that JSA has to pay employers’ National Insurance and on top of that, pension contributions and the apprenticeship levy, if they apply as well.
We don’t decide on those amounts or the rates, it’s all laid down in law.
Then, as your Umbrella employer, we have to meet costs just like any other business – systems, insurance, and the people running the payroll department. To cover these costs, we’ll deduct a margin from the rate we receive from your agency. In the same way your agency deducts a margin from the rate they receive from your end hirer, as they’ll have costs they need to cover too.
At the bottom of your pay statement, you’ll see your take-home pay, which is the actual amount that will be paid into your bank at the end of the week or the month.
When you join JSA Umbrella, we’ll provide a detailed pay illustration so you can see exactly what goes into those calculations.
If there’s anything you don’t understand, then just get in touch, that’s what we’re here for, 8 til 8 every weekday, and on Saturday mornings.
We appreciate it can be confusing, so will be happy to clarify anything you’re not sure about.