When it comes to working with an umbrella company, your payslip may look a little different to what you might be used to. When working through an umbrella company, there are certain costs that come out of your umbrella rate, which can be difficult to understand.
Your payslip will typically have two sections. A Reconciliation Statement and then a more familiar looking break down of pay at the bottom.
The reconciliation statement shows the deductions taken from the service fee that we receive from your agency. The service fee is your hours multiplied by your umbrella rate, which has been uplifted above the PAYE rate to accommodate for deductions.
After the deductions taken from the service fee, we are left with your gross pay. This brings us to something more like a regular payslip break down, deducting national insurance, pension and tax.
Company receipts:
This section at the very top of your payslip shows how many hours you have worked and what umbrella rate you are on. Once multiplied together, you come out with the service fee.
Company costs:
This section shows you all the deductions that come out of the service fee. It is important to remember here that the service fee is not an amount that is payable to you.
- Company overhead- This is the fee that we charge of our service. It is effectively a weekly charge as it is deducted per timesheet, and our contractors are paid weekly.
- Employers’ national insurance- This is a deduction that can be confusing. You may ask, “why am I paying my employers national insurance?” but again, this is not coming out of your gross pay, it is coming out of the service fee.
- Pension Costs- This is where you will see the employers pension contribution, if you have opted into our workplace pension scheme.
- Holiday provision- If you have chosen to have your holiday pay retained, you will see here the amount that has been held back. Bear in mind that because the amount retained is a percentage, it is subject to change depending on your hours that week.
- Apprentice Levy- This particular deduction can be confusing because at first glance it can look like a mistake, saying that you’re on an apprenticeship. But this cost is to do with the annual wage bill of the employer. If the wage bill is over £3 million a year. All employers with a wage bill above this amount are required to pay an apprenticeship Levy, as your employer your umbrella company need to pay this to HMRC. So, it comes out of your umbrella rate as one of your employment costs.• Company overhead- This is the fee that we charge of our service. It is effectively a weekly charge as it is deducted per timesheet, and our contractors are paid weekly.
- Employers’ national insurance- This is a deduction that can be confusing. You may ask, “why am I paying my employers national insurance?” but again, this is not coming out of your gross pay, it is coming out of the service fee.
- Pension Costs- This is where you will see the employers pension contribution, if you have opted into our workplace pension scheme.
- Holiday provision- If you have chosen to have your holiday pay retained, you will see here the amount that has been held back. Bear in mind that because the amount retained is a percentage, it is subject to change depending on your hours that week.
- Apprentice Levy- This particular deduction can be confusing because at first glance it can look like a mistake, saying that you’re on an apprenticeship. But this cost is to do with the annual wage bill of the employer. If the wage bill is over £3 million a year. All employers with a wage bill above this amount are required to pay an apprenticeship Levy, as your employer your umbrella company need to pay this to HMRC. So, it comes out of your umbrella rate as one of your employment costs.
Gross for tax:
This is the amount that is payable to you, think of this as your actual rate. If you divide this number by the amount of hours you have worked in a week then you will come out with a rate of pay that is more reminiscent of a PAYE rate. For instance, if your gross pay comes out to £500 and you have worked 35 hours, dividing this would give you a rate of pay of £14.28. This can be a helpful way to work out your pay in a way that is more familiar.
Payments:
On the second section of your payslip, is a more traditional looking payslip. Here you can see the different elements that make up your gross pay before standard deductions like tax etc.
- Basic Pay- Here is where some people get confused. You will see your hours in the unit’s column and then in the rate column you will see the national minimum wage (£12.21). This does not mean that your rate of pay has decreased or that you are NMW. For the purposes of auditing, this on all our contractors payslips to show that we are paying at least minimum wage to everyone.
- Holiday Pay Advanced- This payment will only appear if you have chosen to have your holiday pay advanced. It shows how much holiday pay has been added on to your wage. It is 12.07% of your gross pay so if your gross pay was £500 you would have £60.35 added on in holiday pay.
- Additional pay- This relates back to basic pay. Here is where the remaining amount of your gross pay is to bring it up to the full amount. When it is added to the amount of the basic pay and holiday pay, it will bring the amount up to the gross pay from the previous page of the payslip.
Deductions:
This is where you see Tax, National Insurance and pension contributions (if you have opted in). you may also see student loans here or tax rebates, if applicable. These are all standard deductions that you would get in any role, PAYE or umbrella.
Net Pay:
This is where you will see your final take home pay, after all deductions. This is the amount you will receive in your bank account.
Figuring out what deductions and costs mean can be confusing, especially when it comes to working with umbrella companies. But it doesn’t have to be. Here at ARCH Finance, we are always happy to answer questions about payslips. If you find yourself having queries about any aspect of your payslips, please don’t hesitate to get in touch.
Phone:
01772 956500
Email: signup@archfinance.co.uk
