Calling all contractors! If you’re new to umbrella companies, don’t just pick the provider that quotes you the highest take-home pay retention! Many umbrella company illustrations are inaccurate and have been unethically inflated to trick temporary workers into signing up with one provider over the competition. Don’t fall for misleading and naughty tactics from unscrupulous providers! Please keep reading and stay ahead of the game. And, before you shop around, try our free instant umbrella company calculator.
Understanding umbrella company illustrations
An umbrella company illustration is a projection of your earning potential with an umbrella company. Umbrella company illustrations are based on several pieces of information, including tax code, working hours/days, rate of pay, and more. Before we delve into how umbrella company illustrations are created, we must stress that all umbrella companies operate in the same way. As a result, your pay retention through umbrella companies shouldn’t vary between providers because they all use Pay As You Earn (PAYE).
Understanding umbrella company margins
Every compliant umbrella will process your payroll in exactly the same way – with HMRC’s tax system PAYE. Umbrella company margins are the only things that will alter your pay retention between providers – assuming you only approach compliant organisations. Therefore, if you approach two different umbrella companies – both with a £20 per week margin – your pay retention with both providers should be identical.
Most transparent umbrella companies will quote their “gross margin” – the amount taken from your gross pay before any deductions. Sadly, some umbrella companies have been acting sneakily and have been quoting their “net salary”. This is unacceptable, as using this figure could be misleading.
For example, an honest umbrella may quote a margin of £15.00 per week, which is taken gross. However, another unethical umbrella may mention a £14.00 margin but take this net. A £14.00 net margin is higher when taken from gross, and this is a sales technique that a few naughty umbrella companies have used to try and win business. Don’t fall for this tactic, and if you speak with any umbrella companies directly – ask them whether they’re quoting a gross margin or net margin. If an umbrella is quoting their net margin – that is fine, providing they make this clear to you beforehand.
What does an umbrella company illustration consist of?
Umbrella company illustrations are complex. Compliant umbrella companies should be providing temporary workers with accurate projections. However, this isn’t always the case. Launched in September 2021, Umbrella Company Calculator sets out to help temporary workers understand umbrella company payroll. The tool is also designed to provide workers with a realistic indication of what they should expect to retain when paid by an umbrella company.
Below are some of the factors that are used to create an umbrella company illustration. It’s not a “checklist” as such (as the blog’s title suggests), but you should consider the following before you ask around for umbrella company calculations.
Tax Code
The tax code that is used for umbrella company calculations should be tailored to the individual. In some cases, umbrella companies have been known to use unrealistic tax codes – to trick the contractor into thinking they’ll retain more money. Our calculator is based on a 1257L Week 1 / Month 1 tax code and Class 1 National Insurance. It’s the best, most accurate tax code to use.
Payment Frequencies
Before requesting an umbrella company illustration, consider how much time off you’ll want over the tax year. Believe it or not, some umbrella companies have not considered any holiday to inflate the worker’s earning potential. Our calculator is based on 48 weeks (weekly calculations) and 52 weeks (monthly calculations). Click here and find out why.
PAYE
Compliant umbrella companies will base their calculations on HMRC’s Pay As You Earn (PAYE) tax system. As a result, you should expect to retain roughly 50 to 70 percent. However, everybody’s circumstances vary.
Employment Costs
The Apprenticeship Levy and Employer’s National Insurance Contributions are deducted from the assignment rate – the amount the worker has agreed to be paid with the agency or directly with the end client. Accurate umbrella company illustrations will include these deductions and will show where they’ve been made. The employment costs are included with our calculator – as you would expect.
Student Loan Repayments
Student loan repayments may apply to you, and if they do, they should be considered when requesting an umbrella company illustration. Some umbrella companies will not include student loan repayments in their calculations, resulting in higher than realistic pay retention. Our calculator lets you choose whether to have student loan repayments included or not.
Pension Contributions
Umbrella companies are legally required to enrol all employees into a pension within 12 weeks. However, you are free to opt out if you would prefer. Opting out must be done once you’ve been enrolled, and you can reclaim your first contribution if you want to. Our calculator doesn’t include pension contributions because, through our experience, most umbrella employees opt out of pension contributions.
Margin
As mentioned earlier in the blog, umbrella company margins are the only things that should vary your pay retention between compliant umbrella companies. Umbrella companies should specify whether they are quoting their gross or net margin. Our calculator allows you to choose the gross margin used for your free umbrella company illustration. Bear in mind; most umbrella companies will quote a gross margin (before any deductions to your pay).
The £100,000 Abatement
The £100,000 abatement is an interesting thing, and we believe that most umbrella companies don’t consider it. So, what is the £100,000 abatement? For every £2 you earn over £100,000 per annum, you lose £1 of your personal allowance. You’ll be pleased to know that our umbrella company calculator considers the £100,000 abatement for the higher earners.
Use our free umbrella company calculator now
Our umbrella company calculator is designed to be accurate and transparent, and it’s free to use now. Please click here to get a tailored umbrella company illustration you can trust! All you need to do is submit a short form, and you’ll be presented with a tailored projection based on your circumstances. You can request as many illustrations as you like.
