All UK employers have to pay Employers NIC, and an Umbrella Company is no different. We have to pay Employers NIC on the income we receive as part of the work you do. Ideally, the rate you are offered to work through an Umbrella Company should be uplifted to account for the umbrella’s employment costs. Many recruitment businesses that understand how the umbrella supply chain works, do provide this uplift so that the umbrella contractor is paid at least comparably to, or more than, a permanent staff member at the end client.
This therefore needs to be taken into consideration when negotiating your pay rate with the agency or end client. Please bear in mind that if you were to accept a contract paying the same rate as when you were a permanent member of staff, you would actually take home less money because of the employment costs (including Apprenticeship Levy, and Holiday Pay amongst other things) that the Umbrella Company has to now account for.
Employer’s NIC is calculated at 13.8% on earnings above £156 per week and is uncapped so, not taking into account any expenses or the margin that the Umbrella Company retains, this is the minimum uplift you would need on a permanent rate to achieve a similar net pay. As an example of this; you would need to negotiate £28.45 as the minimum hourly contractor rate to take home a similar net pay as a permanent member of staff earning £25.00 per hour.
You may be offered two different rates, one to be paid directly through the company’s payroll and another, higher rate, to have your pay processed through an Umbrella Company. The lower rate will apply if you opt to be paid directly by the company because they themselves will be liable for the Employer’s NIC. The higher rate is offered if you are being paid through an Umbrella Company because they are liable to pay the contribution. Provided the difference between the two rates is greater than 13.8%, you will be better off through an Umbrella Company.
As an aside, if you are found to be “inside-IR35”, your net pay through your Limited Company won’t be too dissimilar to that of an Umbrella Company because the same deductions for tax and NI contributions will be made. If you do fall inside of IR35, we would recommend using Contractor Umbrella to process your payments because the additional workload involved in running your own business outweighs the minimal financial gains.
Please do not hesitate to contact Sophie on 01206 591 000 or email firstname.lastname@example.org.
For an accurate estimate of your net pay after all deductions please visit our PAYE take home pay calculator.