How is contractor pay calculated?

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It’s no secret that one of the main reasons for becoming a contractor is the ability to earn more than those in permanent employment – and why not?

Since money’s such a strong motivating factor, you’ll obviously want to know how much you can expect to walk away with at the end of a busy working day. That’s why we’ve developed our handy calculator so you can see straight away if you’d be better off as a contractor.

When you first start down the contracting route, you’ll want to make sure you’re getting the best possible help and advice. That’s why most people go with an umbrella company, such as Parasol.

They’ll take care of all your admin duties, leaving you free to concentrate on the assignment. All you’ll need to do is upload your timesheets and they’ll issue you a pay slip, just like a permanent employee.

But how does the company work out how much you’ll take home?

The invoice value

Firstly, a rate is agreed with the agency for the work you do. The umbrella company invoices the agency using the agreed rate and hours worked. This is called the invoice value and is paid by the agency to the umbrella company. Various deductions will be made from the invoice value based on your unique assignment (explained below). These will be the same for every umbrella company, no matter which one you choose.

Income Tax and National Insurance Contributions

If you join an umbrella company, they’ll become your employer. This means you’ll have Income Tax and Employees’ National Insurance deducted from your salary. Employers’ National Insurance is also deducted, but from the invoice value, not from your salary.

Umbrella company Margin

Each umbrella company retains a ‘margin’ from the invoice value, not from your salary, in return for the services they provide. This is one of the few things that differ between umbrella companies, so it’s worth looking at how much the providers retain before deciding which one to work with.

That being said, you should also look at the quality of service you’ll receive, as some of the ‘cheap and cheerful’ businesses may not offer you adequate assistance or cover.

Business costs and expenses

You will be able to claim legitimate business costs and expenses as long as they’re incurred during an assignment. The types of business costs and expenses that can be claimed and reimbursed are dependent on the type of assignment you’re working on and whether it’s subject to supervision, direction or control (SDC).

Business costs and expenses that are paid to you are deducted from the invoice value, not from your salary.

Why Parasol?

When you start off life as a contractor, you’ll want to make sure you’re getting the best possible support. As one of the longest-established and best-known providers in the industry, we understand what makes contractors tick. Just ask the 90,000+ professionals we’ve dealt with over the years!

We’ll be with you all the way through your contracting career, providing expert advice and assistance whenever it’s needed. We know that a contractor’s WorkStyle isn’t just 9-5, so neither are we. That’s why you can submit your timesheets and expense claims any time day or night.

You can also speak to our team of professionals at a time that’s convenient for you. We’re open 8am-8pm Monday to Thursday, 8am-7pm Friday and 10am-4pm Saturday.

Alternatively, based on the details of your assignment, it might be worth considering going limited which can further enhance the amount you take home.

For more information, or to join up, please call 0800 458 0818 or email