Your Payslip Explained – A Guide to Umbrella Contracting

02/16/2024 - 12:08

Whether you’re new to contracting or an existing customer, understanding your payslip might seem challenging sometimes. In this article we will break down your payslip so that you can understand what every cost means.

What is an Umbrella Company?

An umbrella company is an organisation that employs temporary workers and enables them to carry out several short-term contracts for agencies and end-clients.

Someone may need an umbrella company for various reasons. Firstly, it provides a convenient solution for individuals who work as contractors or freelancers, as it allows them to focus on their work without having to deal with the administrative burdens of managing their own limited company. This can save them time and effort in handling tasks such as invoicing, tax calculations, and compliance with regulations.

Umbrella companies offer security and stability for workers, as they act as the intermediary between the worker and the client, ensuring that payments are made promptly and correctly.

Using an umbrella company can be beneficial for those who work across different industries or have multiple clients. It simplifies the process of managing income from various sources, while being able to access additional benefits such as access to employee perks, insurance coverage, and support with any queries or issues that may arise during the contracting period.

Umbrella companies will charge a small weekly or monthly margin to take care of your payroll and all your taxes for you, including expense and tax relief on mileage. Payroll services like us also collect payments from agencies, process statutory benefits, handle pensions, and ensure compliance with the latest tax regulations.

Why is it important to know how to read my payslip as a contractor?

By taking the time to review your payslip regularly, you can stay on top of your earnings and avoid any potential issues that could impact your income and financial stability.
As a contractor, it is essential to know how to read a payslip for several reasons. Here are some of the main points to consider:

Understanding your earnings:

Your umbrella company payslip is a breakdown of your gross earnings and deductions and can help you understand how much you are making and where your money is going. This information is crucial for budgeting and financial planning.

Ensuring accuracy:

By reviewing your payslip, you will ensure that your employer has accurately calculated your pay and deductions. This will help you avoid errors and discrepancies that could affect your income and tax liabilities.

Compliance with regulations:

As a contractor, you are responsible for paying your taxes and complying with relevant regulations. By understanding your payslip, you will ensure that you are paying the correct amount of tax and meeting your legal obligations.

Identifying potential issues:

Your payslip can also help you identify potential issues or concerns, such as missing payments or incorrect deductions. By recognising these problems early, you can take steps to address them and prevent further complications.

Why does basic pay show the hours worked at £10.42?

Employment law requires employees to receive a minimum amount of pay for each hour worked. This is the National Minimum Wage (currently £10.42), and the basic pay element of your wage is therefore the number of hours worked multiplied by £10.42. The National Minimum wage is usually revised annually in April.

Why is my total gross pay less than the value of the hours I worked?

Your total gross pay will be less than the value of the hours you worked, because we have already taken the costs of the payroll service we provide, (the employer’s NI contribution and apprentice levy) from your assignment rate.

We do this before we start calculating your pay as it reduces the overall tax and NI deductions we have to make.

Why do I get Holiday Pay?

As a contractor working with us, you are entitled to holiday pay. The holiday pay element is included in your assignment rate by your agency.

We pay it to you in advance each week instead of saving it for you and paying you when you take holiday. You can however elect us to retain it and pay it to you at your request.

When working with an umbrella company, it's essential to understand how your salary and holiday pay are structured differently compared to being under PAYE. With an umbrella company, your salary is typically spread over 46.4 weeks, rather than 52, and a portion equivalent to 12.07% of your pay is allocated as holiday pay. This means you have the flexibility to choose whether to keep this amount or utilise it for your time off.

What is additional pay?

This is the part of your pay that is left once the basic pay and holiday pay elements have been worked out and set aside. It is the balance of your wage.

To understand your payslips, we've compiled a list and explanation of each term you might encounter. Look out for the following:

  • Tax Period - number of the tax week/month the payment is being made in.

  • Week Ending - last day of the timesheet week being paid.

  • Tax - the amount of income tax you pay.

  • National Insurance (NI) - the amount paid for employee’s NI.

  • Workplace Pension - contribution to your pension plan.

  • Net Pay - your take-home pay.

  • Total Gross Pay

  • Units - hours worked.

  • Rate - assignment rate of pay, given to you by your agency, which includes all employment costs.

  • Gross for Tax - gross taxable pay from which your employee’s NI and PAYE are calculated.

What are the Company Costs and Company’s Margin?

The Company Costs are the pre-tax deductions that reduce your tax and NI liability. The Company Margin is the amount we retain to process your pay.

What other taxes do I pay?

  • Employer’s NIC - The employer’s NI deduction. This is included in the assignment rate you receive from your agency.

  • Pension Costs - The employer’s workplace pension contribution.

  • Holiday Provision - Your holiday pay is included in your assignment rate and is advanced to you each week. It is shown as a cost on your payslip and returned to you as holiday pay taken this period.

  • Apprentice Levy - The employer’s apprentice levy deduction. This is included in the assignment rate you receive from your agency as it is used to fund apprenticeships throughout the country, it doesn’t necessarily mean you’re an apprentice yourself.

Why choose

At, we pride ourselves on being 100% reliable and compliant, which is why we welcome tougher regulation of the market. is accredited by trusted bodies like the FCSA, and the company has a long track record of meeting all our tax obligations and of treating workers fairly.

As an FCSA Accredited Member, has provided the best value, expert and compliant services to over 100,000 contractors over the past 15 years. We have also recently achieved our ISO 27001 certification, the international standard for information security. This is a testament to the standards we maintain to keep your information safe and secure.

Our customers rate us excellent on review sites.

Get in touch!

Our experienced advisors can provide you with a personal comparative illustration to working either umbrella or operating your own limited company.

If you still have any questions regarding your payslip, our friendly team can give you a hand. Just call us on 01625 546 610 and we’re more than happy to help.