Umbrella Payments Explained

Recently we were asked why our payslips show two separate amounts; basic pay and commission as they were wanting to check that everything had been declared to the HMRC correctly.

The simple answer to this is in accordance with the contract of employment between the umbrella company and the contract worker an employee must always be paid at least National Minimum Wage for all hours worked, this is a protection for workers in the UK. With umbrella employees working multiple assignments during their employment with the umbrella, it is easier for all parties to have one overarching contract of employment rather than having to create a new one for each assignment undertaken. The contract therefore states that payment will be made of a basic payment (NMW) plus a commission or discretionary bonus.

  • Basic Pay

Most umbrella companies will pay you ‘basic pay,’ which is calculated according to the total hours worked multiplied by the National Minimum or Living Wage. This will be included on your payslip for the period in question.

  • Commission

For most umbrella employees, the remainder of the salary payment will appear as either ‘commission’ or ‘bonus.’ This remainder is anything that is above the basic rate of pay, and will be included with the other pay elements to form your gross taxable pay.

*Please note that even if you see two amounts on your payslip, both of these are calculated for your personal tax and NI purposes*

However if you add the income figures together you will not get the value of the contract rate which the agency has quoted for the assignment. This is because the contract rate is not the same as your payment rate. In order to explain this clearly, we need to go back to the movement of funds prior to a contractor being paid by an umbrella company:

  • Usually a contractor will complete an assignment for an End Client.
  • The end client pays the agency
  • The umbrella invoices the agency for your services (this is done at the contract rate quoted by the agency)
  • The agency pays the umbrella
  • In line with the contractual chain and agreement between the umbrella and agency, the funds received at this point belong to the umbrella company and are classified as ‘umbrella income’.
  • To find your pay rate the umbrella fee, Employers NI and pension (if applicable) are deducted from the umbrella income.
  • The remaining amount then becomes your gross salary payment and your personal Tax, NI and pension are deducted from this to leave the net value due for payment to you.

At UC Contractors, we provide you with two payment documents on your personal system:

  1. The Payslip which only shows your Salary payment (often shown as a split calculation as explained above.)
  2. The Pay Statement which we provide for reconciliation purposes shows the umbrella income, details the employer deductions taken to calculate the salary rate and then the additional employee deductions made to arrive at the payment made to your account.

If you have any questions relating to your umbrella payslip please do not hesitate to contact us for clarity.

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Umbrella Payments Explained

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