When you register with an umbrella company, you are entitled to holiday pay, but it is often an area that causes a lot of confusion. Continue reading as we explain how holiday pay works through an umbrella company, including how it is calculated and paid to umbrella company employees.
We’ve taken plenty into account when trying to produce the most accurate umbrella company calculator there is, and we’ve summarised these below.
Our calculator uses a 1257L Week 1 / Month 1 tax code and Class 1 National Insurance. Tax is calculated on a Week 1 / Month 1 basis and is not cumulative. Previous earnings and any tax paid in the current tax year are not taken into account, this may affect tax due.
The tax code used is an English tax code. If you are a Scottish taxpayer, it’s worth contacting an umbrella company directly and asking for an illustration.
Different organisations will pay workers with different frequencies. We’ve taken this into account with Umbrella Company Calculator. There are three payment frequencies to choose from – weekly, fortnightly and monthly.
The following is worth noting:
Weekly Calculations – Weekly illustrations are based on 48 working weeks per full tax year because it takes into consideration bank holidays, weekends and time off as it is unlikely you will work the full amount in the financial year.
Monthly Calculations – Monthly illustrations are based on 52 working weeks per full tax year because it creates a calculation using the average number of working days per month, which is 21.66 days (52 weeks ÷ 12 months x 5 days per week). This gives a more realistic, average take-home pay over the course of the whole year.
Shows the deductions made to gross salary.
Our umbrella company calculator will show you the deductions made to your gross pay in a clear and transparent fashion. We’re trying to make life easier for temporary workers.
PAYE and official government figures
National rates of tax and National Insurance Contributions have been used in the backend of Umbrella Company Calculator.
Our umbrella company calculator has been updated for the 2022/23 tax year, and we’ve made important updates. These include the changes to the national insurance contributions, as follows:
- Employer National Insurance Contributions increased from 13.8% to 15.05%.
- Employee National Insurance Contributions increased from 12% to 13.25%.
When using an umbrella company, it’s important to take employment costs into consideration. These are the Apprenticeship Levy and Employer National Insurance Contributions (the updated figure is above), and they’re deducted from the assignment rate.
You can choose whether or not to have student loan deductions taken into account when requesting a calculation.
Umbrella companies are legally required to enrol employees into a pension within three months. Contractors work on short-term assignments. Therefore, most decide to opt-out of pension contributions because they’ll have a different arrangement in place (such as savings, a pension elsewhere, etc.). Therefore, our calculator excludes pension contributions.
Holiday pay is calculated at 12.07% of a contractors or freelancers assignment rate. Umbrella companies will either include holiday pay each time they process their employees’ payroll or accrue it for employees to claim in a lump sum at a later date. It’s our understanding that most contractors have it paid to them each payment frequency, so our calculator includes Holiday Pay.
Umbrella companies deduct a margin from a contractor’s assignment rate (gross). The margin is the only revenue an umbrella company generates for itself. Margins are usually between £15 and £30 per week. To help users of our umbrella company calculator get the most accurate results possible, we’ve allowed varying margins.
The £100,000 abatement
Are you familiar with the £100,000 abatement? For every £2 that you earn over £100,000 per annum, your personal allowance decreases by £1. Rumour has it that many umbrella’s don’t include the abatement when providing take-home pay illustrations to higher-earning contractors and freelancers. Our umbrella company calculator considers the £100,000 abatement. After all, we’re all about accuracy.
It’s still an illustration
The team at Umbrella Company Calculator has done everything possible to create an accurate tool. Our intentions are good! However, everybody has different circumstances. Please use the tool responsibly and understand that the calculations are for illustration purposes only. Many factors can impact an umbrella company employees’ take-home pay retention. We’ve just done our bit to try and help!