Frequently Asked Questions

What is the umbrella margin and how is it deducted?

All umbrella companies deduct a ‘margin’ from the total invoice value (not from your salary), in return for the services they provide.

The margin is deducted as a ‘cost of employment’, from the total umbrella day rate for the invoicing period, after which the other costs of employment are deducted, such as Employer’s NI, Employer’s Auto-Enrolment Pension Contributions, and the Apprenticeship Levy.

See our employee pay infographic for an illustration of how employee pay is structured and the deductions that are made.

When do I need to register with a payroll umbrella company?

It is recommended that you make initial contact with your chosen payroll umbrella company at the same time as negotiating the assignment with the agency or end-client, so that you are ready to go as soon as the contract has been secured.

All contracts must be signed on the first day of the assignment or before.

How does the supply chain relationship work when a payroll umbrella company is involved?

If an agency is involved, there are two different service agreements for your assignment – one between the end-client and the agency, and a subsequent contract between the agency and your chosen payroll umbrella company.

Simultaneously, the payroll umbrella company, which assumes the role of your employer, will arrange an employment contract with you.

As you work on the assignment, the ‘fee-payer’ (either the end-client or the agency) pays the fee income and the VAT due on the amount to the payroll umbrella company. The payroll umbrella company is responsible for processing and taxing your income and deducts a margin to cover its own costs. Once all deductions have been made, you receive your net pay through the payroll umbrella company’s payroll (see more about payroll deductions and pay structure below).

Please see our supply chain graphics for more information:

How long does it take to register with a payroll umbrella company?

The onboarding and contracting stage takes approximately 2 working days to complete, assuming timely responses from all parties.

Please see our infographic on the contracting procedure for more information.

Why does my agency insist I use a payroll umbrella company?

Due to new legal rules and requirements coming into force, inside IR35 workers must either work through a payroll umbrella company, or be paid through the payroll of the agency or end-client organisation.

While some (but not all) end-clients may be OK with having temporary workers on the payroll, most agencies prefer not to payroll their candidates, and they usually recommend payroll umbrella companies so that all the employment, taxation and statutory issues associated with the hire of their candidates are taken care of.

What are the benefits of using a payroll umbrella company?

Working through a payroll umbrella company allows workers to be flexible and work on various assignments with different end-clients, while being paid through a payroll that is compliant with HMRC rules and UK law. It is the recommended route for those assignments that are deemed to be inside IR35.
A worker may also choose the umbrella route themselves because of the administrative simplicity and speed of setup that umbrella working offers.

What is a payroll umbrella company?

A payroll umbrella company is a company that employs freelance workers such as interim managers, consultants and contractors, who work on temporary assignments, either directly with an end-client or through an agency.

The worker becomes an employee of the payroll umbrella company, and the payroll umbrella company contracts with the end-client or agency to provide the services of that worker. The payroll umbrella company issues invoices to the end client or agency and, on receipt of payment of the invoice, pays the worker through PAYE.

The payroll umbrella company enters into an employment contract with the worker and a service contract with the agency or end-client. 

What are my employment rights when working through a payroll umbrella company?

Employees of a payroll umbrella company are entitled to all the same statutory employment rights as employees of any other company, including:

  • The National Minimum Wage
  • Protection against unlawful deductions from wages
  • A statutory minimum level of paid holiday
  • A statutory minimum length of rest breaks
  • To not work more than 48 hours on average per week, or to opt out of this right if they choose
  • Protection against unlawful discrimination
  • Protection for ‘whistleblowing’ (reporting wrongdoing in the workplace)
  • Equal treatment for part-time work
  • Statutory Sick Pay
  • Statutory maternity/paternity/adoption/shared parental leave and pay. Minimum notice periods if their employment is ending.
Can I contribute to a pension scheme when working through a payroll umbrella company?

Contributions to a personal pension scheme may be paid by Competex Pro directly to your chosen pension provider in line with our Personal Pension Contribution Policy, without falling subject to tax or NI on these contributions. This is entirely at your discretion and by individual arrangement with Competex Pro. Contributions can be made in addition to auto-enrolment pension contributions, or as the only pension scheme.

We are not authorised to advise on the permissible level of pension contributions, and you should obtain this advice from your personal financial adviser.

If you are interested in arranging such contributions, please speak to a member of our team and we can explain to you how the process works.

Do I need to take out separate Professional Indemnity Insurance when working through a payroll umbrella company?

In most cases, no. Professional Indemnity Insurance is included in the employment service provided by Competex Pro.

As an employee of Competex Pro, you are covered by the following insurances, which are included in your package:

  • Professional Indemnity – limit £1,000,000
  • Employer’s Liability - limit £10,000,000
  • Public Liability - limit £1,000,000

The specified insurance cover is intended to meet the needs of most Competex Pro umbrella employees, but if you have an insurance requirement in addition to the above, you need to accommodate this at your own cost.

Can I be furloughed when working through a payroll umbrella company?

Yes. However, the decision to furlough a contractor isn’t one that should be made lightly, and this should be discussed between the end client, the agency (if there is one in the chain), the payroll umbrella company (as the deemed employer) and the worker.

What expenses can I claim when working through a payroll umbrella company?

Whether the worker can claim expenses relating to the assignment depends entirely on what has been arranged with the end-client. In some cases, the worker may have agreed to be paid a flat fee, inclusive of all incidental expenses.

Even with an agreement for a flat fee for each work unit (day or per hour) provided, the end-client may allow the worker to claim additional expenses while providing his or her services. Those expenses would then need to be authorised on a case-by-case basis.

The expenses that may be paid to the employee free of tax and NI are determined entirely by HMRC regulations. It may be that the payment of certain expenses has been negotiated with the end-client but that these expenses may not be paid on to the employee free of tax and NI. This means that the fund available to pay salary is increased.

Can I use a payroll umbrella company if my role is outside IR35?

Yes, most payroll umbrella companies, including Competex Pro, will employ you if your role is found to be outside IR35. Competex Pro does not take the IR35 status of any assignment into account or look at SDC (Supervision, Direction and Control), as IR35 does not apply to assignments where the worker is employed by a payroll umbrella company.

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“I was really impressed with the fast, efficient and streamlined application process at Competex Pro having used many umbrella’s over my years contracting this is certainly the best.”

Mrs. Walker, Consultant

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Our Digital Guide

We have produced this free and useful guide to working through a payroll umbrella company, with the aim to help you understand the benefits Competex Pro can offer you as a contractor, interim manager or consultant.


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