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What is an umbrella company margin?

Working through an umbrella company provides lots of benefits which can make life much easier for contractors and temporary workers. But this way of working is slightly different from working directly with an end hirer or employer. 

One of the things that differs is the umbrella company margin, which is a charge made to cover the operating costs of the umbrella.

In this article, we look at what the umbrella company margin is, and how it will affect you and your pay. 

Is working for an umbrella company free?

Compliant umbrella companies can only generate income from the fees they charge to their contractors or temporary workers. This fee is called the umbrella company margin.

It is the amount of money that an umbrella will deduct every time they process your payroll (usually weekly). The amount will have been agreed before you sign the contract.

What does an umbrella company margin cover?

The umbrella company margin covers the operating costs of the umbrella company. Things such as administrative costs, staffing costs and other business expenses.

Umbrella companies also often provide a range of additional benefits to contractors which must be paid for. These might include professional insurance, health insurance or professional memberships.

How does an umbrella work out my gross pay?

Your umbrella company will charge an assignment rate to your recruitment agency or end hirer. The umbrella company will make several deductions from the assignment rate to work out your gross pay.

The deductions that the umbrella company will make include:

  • Umbrella company margin (the umbrella company’s operating costs)
  • Employer National Insurance contribution
  • Employer workplace pension contribution
  • Holiday pay
  • Apprenticeship Levy (where applicable)

The remaining amount is your gross pay.

What is the reason for a margin?

The margin covers everything we do for you from administrative costs associated with processing your pay including the issuing of invoices, performance of right to work checks processing of payroll and payment to your account, SMS notifications and the vetting, processing and secure storage of your expenditure.

As a business, we need to make a small profit to stay running and to provide you with a service. This is covered in the margin. You also get tax relief on this, so because the margin is deducted before your tax is deducted, it lowers your taxable pay which then lowers your tax. 

What is deducted from my gross pay?

The umbrella company will then deduct several things from your gross pay on your behalf, these deductions include:

  • Income tax
  • Employee National Insurance contribution
  • Employee workplace pension contribution
  • Student loan repayment (where applicable)
  • Other legal deductions (such as court orders or Child Maintenance Services)

The remaining amount is your net pay.

How will I know what deductions will be made from my umbrella company pay?

All deductions should be outlined before you register with an umbrella company, and in every case before you sign a contract to work. 

Request a detailed take home pay breakdown from your umbrella to ensure that you understand what to expect, any compliant umbrella will be happy to provide this.

If you are working through a recruitment agency you should also be provided with a Key Information Document (KID) before you accept a contract. The KID will outline all your terms of work and what you can expect regarding deductions from your pay.

How much are umbrella company margins?

Weekly margins vary from company to company and according to the services they provide. 

Most umbrella companies charge a flat weekly fee, but some umbrella companies might deduct a margin based on a percentage of your pay. This can be beneficial for those on a lower rate of pay, but if you’re on a higher rate of pay, a weekly margin might be more cost effective for you.

Should I go to the cheapest umbrella company?

Don’t just look for the cheapest umbrella, look for the one which combines great service and  trustworthiness with value for money.

Only work with compliant umbrella companies, these umbrellas are the most trustworthy because they have passed stringent standards audits to make sure that they operate fairly and in the best interests of the contractor. Accreditations which denote compliance include FCSA and Professional Passport.

Working for an umbrella company can be a great way for contractors to ensure continuous employment (important for mortgages and access to credit), holiday pay and pension contributions (not usually an option for self employed workers), as well as ensuring that you pay the right amount of tax and National Insurance. 

The umbrella company margin helps your umbrella company deliver great service and benefits to their contractors. 

We are here to help. If you have any questions at all about our umbrella company margin, don’t hesitate to get in touch.

HOW JMK CAN HELP YOU

Since 2002, JMK have been compliantly consolidating back-office, accountancy and payroll functions. 

We have evolved to provide a range of expert services; such as Funding, becoming a leading provider to the contracting industry.

We know every agency is different in some shape or form, even if only by a little, but important bit. Combining our knowledge and experience of multiple sectors enables JMK to support you all from recruiters and payroll, through to finance, compliance and management.

With JMK as your trusted partner, even the smallest team can process the largest payroll, regardless of payroll type.

Have a look at the wide range of services our Funding can provide to you and your business, it is far more than just payroll and finance.

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