When you start working through an umbrella company, your payslip can look more complicated than you expected. There’s a gap between the rate on your contract and the money that lands in your bank, and it’s not always obvious where it goes. This guide explains each step clearly, so you know exactly what to expect and what questions to ask.
The most important things to understand
- Your assignment rate covers more than just your pay. It includes employer tax costs before you receive anything.
- Most of the gap between your assignment rate and your take-home goes to HMRC, not your umbrella company.
- You pay income tax and National Insurance as an employee, because through an umbrella, you are one.
- A good umbrella company tells you what you’re being paid before it arrives and answers your questions when you have them.
What is the assignment rate?
The assignment rate is the amount your agency agrees to pay the umbrella company for your work. Think of it as the total budget for your engagement – not all of which becomes your pay.
Before you receive anything, the umbrella company deducts the costs that any employer has to carry:
- Employer National Insurance contributions (NICs) – employers pay NICs on top of your wages, currently 13.8% on earnings above the secondary threshold. This isn’t taken from your pay. It’s a cost on top of it, drawn from the assignment rate.
- Apprenticeship Levy – a statutory 0.5% levy paid by employers. Your umbrella company handles this as required by law.
- Holiday pay – you’re entitled to statutory paid holiday as an umbrella employee. The cost of this is built into the assignment rate. (More on how holiday pay works in practice below.)
- Pension contributions – your umbrella company enrols you into a workplace pension. The employer’s contribution comes out of the assignment rate.
- The umbrella’s margin – this is the company’s fee for running your payroll, maintaining compliance and providing support. [INFORMATION NEEDED: Whether Sapphire can reference a typical margin range here, e.g. a weekly or monthly fee figure.]
None of these deductions are the umbrella “taking” your money. They’re employer costs that any business would carry – you’re just seeing them laid out because the assignment rate is the starting point.
How your gross pay is calculated
Once employer costs are deducted from the assignment rate, what remains is your gross employment income, sometimes called your gross pay or gross taxable pay. This is the figure your income tax and National Insurance are calculated on.
It’s worth understanding this step because it’s where some contractors get confused. You might look at your assignment rate, look at your gross pay and wonder where the difference went. The answer is employer NICs, levy, holiday pay and pension – costs that sit above the gross pay line, not below it.
Your PAYE deductions: what comes out of your gross pay
As an umbrella employee, you’re paid through Pay As You Earn (PAYE) – the same system used by permanent employees across the UK. That means the following come out of your gross pay before you receive anything:
Income tax
HMRC calculates your income tax based on your tax code. Most people are on a standard tax code (1257L for the 2024/25 tax year), which gives you a personal allowance – the amount you earn before tax applies. Anything above that is taxed at 20% (basic rate), 40% (higher rate) or 45% (additional rate), depending on your total earnings. If your tax code looks wrong, contact HMRC directly as your umbrella company applies whatever code HMRC issues.
Employee National Insurance contributions
You pay employee NICs on earnings above the primary threshold – currently 8% up to the upper earnings limit, and 2% above that. This is separate from the employer NICs that come out of the assignment rate.
Pension contributions
If you’re enrolled in the workplace pension, your employee contribution also comes out here. You can opt out if you choose, though many contractors value the pension as part of the overall package. In Sapphire’s 2025 Contractor Census, 31% of contractors said they’d used private pension contributions in the past 12 months.
Student loan repayments
If you have a student loan, HMRC instructs your umbrella to deduct repayments through PAYE. Your umbrella company applies this automatically based on your loan plan type.
What you actually take home
Your take-home pay is what’s left after all of the above. It can feel like a long way from the assignment rate, but the majority of the difference is tax paid to HMRC, not money kept by your umbrella.
To put it plainly: if you earned the same salary as a permanent employee, you’d pay the same tax. The umbrella model makes those deductions more visible because you’re starting from an assignment rate rather than a quoted salary, but the underlying PAYE calculation is identical.
The only money your umbrella company keeps for itself is its margin. Everything else goes to HMRC, your pension or your holiday pay entitlement.
Holiday pay: how it works in umbrella
As an umbrella employee, you’re entitled to 28 days of statutory paid holiday per year (including bank holidays). How this is handled depends on your umbrella company.
There are two common approaches:
- Accrued holiday pay – your holiday pay builds up over time and is paid when you take annual leave.
- Rolled-up holiday pay – the holiday element is included in each pay cycle, paid alongside your regular take-home. This is now permitted under UK law for workers with irregular hours following the 2024 amendments to the Working Time Regulations, but it must be clearly identified on your payslip.
What a good umbrella company does
Your payslip tells one part of the story. How your umbrella company communicates and supports you tells the rest.
A compliant, contractor-focused umbrella company should:
Send you a clear breakdown before payday. You shouldn’t have to wait until money hits your bank to understand what you’re being paid. Sapphire sends contractors pre-payment communication so you can see the full calculation before it arrives, giving you the chance to raise any questions in advance.
Provide itemised payslips. Every deduction should be labelled and explained. Assignment rate, employer costs, gross pay, PAYE, NICs, pension – all of it visible, line by line.
Be easy to reach. Payroll questions don’t always arrive at convenient times. Sapphire offers support via phone, email and WhatsApp, and 98% of emails are answered the same day.
Hold current, independent accreditation.
FCSA (Freelancer and Contractor Services Association) accreditation means the umbrella has been independently assessed for compliance. Sapphire has held FCSA accreditation for eight consecutive years. SafeRec real-time payroll auditing means every payslip is independently verified, so you have an external check on your pay, not just the umbrella’s own word. According to Sapphire’s 2025 Contractor Census, 75% of contractors said clear, detailed payslips were the most important factor when choosing an umbrella, and accreditation mattered to 30%.
Have no hidden fees. Your umbrella’s margin should be stated clearly and applied consistently. There shouldn’t be unexpected deductions appearing between one pay cycle and the next.
Sapphire is also employee-owned, with a contractor bonus programme that has shared over £1m with qualifying contractors – a reflection of the kind of long-term relationship that goes beyond processing a payroll.
Red flags: what to watch out for
Not every umbrella company operates correctly, and the consequences of using a non-compliant one can fall on you as well as your agency.
Watch out for:
- Unusually high take-home promises. If an umbrella is promising you 85–90% take-home, something isn’t right. PAYE tax and NICs are fixed by law – you can’t legitimately retain significantly more than a standard PAYE calculation would produce. HMRC is clear that tax avoidance schemes using umbrella structures can result in large unexpected tax bills, often years later.
- Unclear or split payslips. If you can’t see where each figure comes from, ask. If the answer isn’t clear, be cautious.
- Loan-based or non-PAYE payment structures. Some non-compliant schemes pay part of earnings as “loans” or through trusts to avoid tax. These are illegal and HMRC actively pursues them.
- No accreditation. FCSA membership and SafeRec auditing aren’t just credentials – they’re evidence of ongoing, independent scrutiny. An umbrella without them offers you no external assurance.
If you’ve been approached by a scheme that promises unusually high pay, you can check HMRC’s list of named tax avoidance schemes at GOV.UK.
Frequently asked questions
Why is my take-home lower than I expected?
The most common reason is that the assignment rate is higher than an equivalent permanent salary would be, precisely because it includes employer costs that a salaried employee wouldn’t see. Once you deduct employer NICs, levy and pension, the gross pay used to calculate your PAYE is lower than the headline rate.
Can I check whether my payslip is correct?
Yes. HMRC provides an online PAYE tax calculator at GOV.UK. If you’re uncertain about your tax code or deductions, contact HMRC directly or speak to your umbrella’s support team.
What happens if my tax code is wrong?
Your umbrella company applies the tax code HMRC issues. If you believe your code is incorrect, contact HMRC to have it corrected—your umbrella can’t override it. An incorrect code can mean overpaying or underpaying tax, both of which are correctable.
If your payslip doesn’t make sense, ask
Your payslip should be readable. If it isn’t – or if a figure doesn’t look right – you should be able to pick up the phone and get a straight answer. That’s not an exceptional standard, it’s the minimum.
At Sapphire, that’s exactly what you can expect: a clear breakdown before your money arrives, an itemised payslip when it does and a team available by phone, email or WhatsApp if anything needs explaining. With over 5,000 Trustpilot reviews and an Excellent rating, the people who use Sapphire tend to agree.
If you’re new to umbrella employment or thinking about switching, speak to the Sapphire team. There are no complicated processes, no pressure and no jargon, just a straight conversation about how your pay works and what you can expect.
