On reading recent news articles about umbrella company workers it seems clear there is a misconception about how they work. Especially in relation to the employers national insurance (E’ers NIC) and the umbrella company margin.

An umbrella company allows workers to take temporary assignments while working for the one employer, the umbrella company. They receive full statutory employment rights as well as protection from The Agency Workers Regulations.

In effect the umbrella company contracts with the recruitment agency (or end client) to supply a service.

The rate the recruitment agency pays goes to the umbrella company and should not be seen as the pay rate for the umbrella company worker providing the service.

It takes into account the fact that the umbrella company will be responsible for employing the person who performs the service and as such will be responsible for paying employers national insurance as well as earning a margin for their own business.

Where the Agency Workers Regulations (AWR) help is that they ensure that the wage and expenses then reimbursed by the Umbrella Company to the temporary worker are the same or more than the wage being earned by a comparable permanent worker also working at the same location.

The umbrella company agrees to pay their worker at least the national minimum wage for the time they have worked in helping deliver the service and then after reimbursing expenses will pass on all the remaining profit for the assignment to the worker by way of a commission payment. In calculating the profit on the assignment the umbrella company has to ensure their costs such as pension and national insurance contributions as well as their own margin are taken into account plus any expenses or wages already paid to the worker.

This therefore means that the employers national insurance and umbrella company margin are taken into account when performing AWR checks and therefore ensure the worker earns at least a comparable salary after taking these into account.

The Umbrella Company is not deducting employers national insurance and a margin from the worker’s salary.

At Umbrella.co.uk we perform a full illustration showing how a workers take home pay will vary between the 3 available options – being paid direct by their recruitment agency (agency PAYE), being paid through our Umbrella Company or working through their own limited company. The contractor then choses their preferred option.

We also request information form the agency to perform our own AWR checks to ensure our worker is earning at least a comparable reimbursement when compared to a full time worker also working at the same client and location.

Umbrella-Company Ltd 0800 121 6513