Working through an umbrella company
There is no legal definition of an Umbrella Company but for the purpose of this page, an Umbrella Company is essentially an overarching employer who provides you with a payroll service.
To work through an Umbrella Company, you should have been provided with a Key Information Document (KID) by the recruitment agency and based on this, agreed to be paid through the selected Umbrella Company. A recruitment agency cannot make you use an Umbrella Company, but it may also be the only way that they pay workers. They also do not have to offer you any other methods of engagement such as PAYE or LCC/PSC. On the other hand, they do not have to offer the option of working through an Umbrella Company or have to accept your preferred Umbrella Company.
Your Umbrella Company and your agency will check your right to work in the UK, so both will ask for this information (see what a recruitment agency will ask for here).
What you should receive from your recruitment agency:
- Information about the work you are going to do
- Key Information Document (KID)
This document outlines your relationship with your agency and the intermediary or umbrella company used in your engagement. It contains key information about the engagement, including pay details, holiday entitlement and other benefits. More information here: https://www.gov.uk/government/publications/providing-a-key-information-document-for-agency-workers-guidance-for-employment-businesses
What you should receive from your Umbrella Company:
- Written statement of particulars (see more information from UK government)
- Contract of Employment (see more information from UK government)
- Payslip (see more information from UK government)
Your Umbrella Company may, alongside your payslip, provide you with a reconciliation statement that sets out in more detail what has happened to the money they have received from the agency. You can find out more about reconciliation statements from UK GOV here: https://www.gov.uk/guidance/working-through-an-umbrella-company
Rights & responsibilities of working through an Umbrella Company:
- You are entitled to receive a written statement of particulars from your umbrella company, on or before your first day of work.
- Employment Rights Act 1996 provides that you should have a contract of employment with your umbrella company. In some circumstances you may be offered a contract for services.
- As an employee of the Umbrella Company, you are entitled to employment rights which can be found here: link to GOV
- You can find out more here: https://www.gov.uk/employment-contracts-and-conditions/written-statement-of-employment-particulars
Charges and deductions:
Your pay may be referred to in different ways on your payslip e.g., an amount equivalent to national minimum wage and reference to another payment such as a ‘bonus’, ‘additional pay’ or a non-repayable payment. It is often done this way as the umbrella company does not know what you will be paid from week to week, and your pay may change with each job you do.
Once these deductions are made, the remaining money is treated as your gross pay and the umbrella company will need to deduct tax and NI as well as any other deductions.
Your agency will confirm your hourly or daily pay rate with you and may advise your umbrella company.
If you are told that you are receiving an ‘assignment rate’ or ‘umbrella rate’ this is the total amount that will be paid to your umbrella company. From this the umbrella company will make any deductions required by law e.g. employer’s NI, pensions etc. These deductions may vary from umbrella company to umbrella company, and will depend on what the contract between the umbrella company and recruitment agency says.
Be aware of tax avoidance schemes
Umbrella companies are not (currently) regulated so they come with risks, such as the potential to be part of a tax avoidance scheme. You should be aware that HMRC may seek to get unpaid taxes from you if you are involved in a tax avoidance scheme.
If your umbrella company or recruitment agency claims that you can get a higher rate of pay or be able to keep more than 80% of your take home pay, this is unlikely to be legitimate, and you should consider whether this is a tax avoidance scheme.
HMRC have some resources to help you spot a tax avoidance scheme here: Tax avoidance – don’t get caught out
Do you have concerns?
If you have concerns around your pay, or your rights while working for a recruitment agency, you should first contact the recruitment agency (or your umbrella company if working via an umbrella) to try and resolve any issues.
If you cannot get a resolution, you should report your issue to JobsAware so we can advise you where to go. Some key places that we may advise you to go to are: