Umbrella Company Payslips Explained

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Receiving a payslip is part and parcel of being an employee. Usually, we give it a quick glance on payday and tend not to pay very close attention to anything other than our net pay amount.

It can be confusing when you try to interpret the deductions you see on your payslip, so to sort through any confusion, we’ve created this guide to help you understand what each deduction is for, and how much you can expect to be paying towards it each month.

What is a payslip?

A payslip is a document you’re issued for each pay period. It will have your tax code and national insurance number, as well as detailing your gross income – that is, your earnings before any deductions are made – for this pay period and the tax year to date.

Your payslip will also list any deductions to your gross income; these are taxes – like Income Tax and National Insurance Contributions (NICs) – as well as things like student loan payments, pension contributions and any benefits you pay for through salary sacrifice, if your employer offers them.

Once these deductions have been calculated and made, you’ll be left with your net income – which is what your post-tax earnings are called.

What is an umbrella company payslip?

An umbrella company payslip serves the same purpose as a regular payslip does, but for contractors who are working through umbrella companies. There are several reasons why you might want to work through an umbrella as a contractor, read our guide if you would like to find out more.

Deductions on an umbrella company payslip

You can expect several deductions on your umbrella company payslip, from tax to pension contributions to student loan repayments. Some of these are unique to umbrella company payslips, so you may be unfamiliar with them. We’ll run through the deductions you’ll likely see on your payslip now.

Employee Pension Contribution

The government introduced the Pension Auto Enrolment Scheme in 2012, as a measure to combat the problem of the UK workforce not saving enough toward their retirement. If you are over 22 years of age, below the state pension age, earn more than £10,000 a year and primarily work in the UK, you will be automatically enrolled into this scheme when working under Parasol.

You will see a monthly deduction of 4% of your basic pay into your pension. This is coupled with HMRC’s contribution of 1% of your basic pay (taking your total contribution up to 5%), also paid directly into your pension fund.

National Insurance Contributions

Based on your personal earnings, you will pay National Insurance Contributions (NICs) on all income above the primary threshold.

For the 2024/25 tax year, the primary threshold for NIC is £12,570 per annum, and the upper earnings limit is £50,270. You will pay 8% National Insurance on income from £12,570 to £50,270 and 2% employees' National Insurance thereafter.

You will also have an employer's National Insurance deduction of 13.8%.

Pay As You Earn (PAYE) Income Tax

Pay As You Earn (PAYE) income tax is a deduction made by your employer and paid to HMRC on your behalf.

Personal allowance: £242 per week | £1,048 per month | £12,570 per year
English and Northern Irish basic tax rate: 20% on annual earnings above the PAYE tax threshold and up to £37,700
English and Northern Irish higher tax rate: 40% on annual earnings from £37,701 to £125,140
English and Northern Irish additional tax rate: 45% on annual earnings above £125,141

Other deductions

If you have any agreements in place to have deductions from your pay – for example, a pay advance recovery, you will see Net Adjustments reflected on your payslip. This will change monthly and is not a static deduction for all employees. Student Loans work the same way as this and will be reflected more specifically under this deduction category. Perhaps the one area we all tend to focus on is the Net Pay section, which shows the amount you will be paid into your account after all the relevant deductions have been taken from your payment.

Reimbursements on an umbrella company payslip

Because you are an employee, your reimbursements will comprise of only two categories; client billable expenses (expenses that are pre-agreed with and paid by the client or agency) - and business costs and mileage - subject to Supervision, Direction and Control (SDC). Your payslip will display the expenses you’ve specified in your timesheet, and so will the total amount you’ll be reimbursed. Invoices that you have raised, and been sent to the client by us, will also be shown in your payslip breakdown.

What is “advance recovery” on a payslip?

Advance recovery is a means for employers to recover a sum of money given to you, either as a loan or as a portion of your salary paid to you in advance. This practice is more common in job roles, such as sales agents earning commissions. If you’ve been paid some of your net income in advance, you may see “advance recovery” and the value listed on your umbrella payslip.

Coming soon: new features to look out for

The Conduct of Employment Agencies and Employment Businesses (Amendment) Regulations 2019 extend to include Key Information Documents (KID). These attempt to increase pay transparency for temporary workers and provide information about their assignments. As an agency worker, you’re entitled to receive a KID outlining:

The relationship between the ‘employment business’ and you as the ‘work-seeker’
The nature of work and the number of hours along with any remuneration or fees which may impact your pay
Entitlement to employee benefits such as holiday pay, sick pay and maternity/paternity pay
An estimate of the net payment to be issued to you after all deductions have been considered
Who the employer is and who is paying you