Umbrella Pay Glossary

Plain English definitions of every term in umbrella company payroll, IR35, and contractor finance.

A

Assignment Rate

The total amount the recruitment agency pays the umbrella company for your work — the starting point for all deductions.

Apprenticeship Levy

A 0.5% government charge on employers' pay bills above £3 million. Deducted from the assignment rate before gross pay.

Auto-Enrolment

The legal requirement for umbrella companies to automatically enrol eligible workers into a workplace pension scheme.

D

Day Rate

The daily rate negotiated with the end client or agency — typically the same as the assignment rate in most umbrella arrangements.

Deemed Employment

The treatment of limited company income as employment income for tax purposes when a contract is caught by IR35.

E

Employer NI

Class 1 secondary National Insurance paid by the umbrella company (as employer) at 15% above the £5,000 threshold. Deducted from the assignment rate.

Employee NI

Class 1 primary National Insurance paid by the worker at 8% between £12,570–£50,270 and 2% above. Deducted from gross salary.

F

FCSA

Freelancer & Contractor Services Association — the industry body whose accreditation signals a compliant, audited umbrella company.

G

Gross Salary

The salary after employer-side deductions (employer NI, levy, margin) but before income tax and employee NI are applied.

I

IR35

Tax legislation targeting 'disguised employment'. Determines whether contractors pay tax as employees or through their limited company.

M

Mutuality of Obligation

One of the three IR35 tests. True contractors have no obligation to accept work and clients have no obligation to offer it.

N

Net Pay / Take-Home Pay

The amount that reaches your bank account after all deductions: employer NI, levy, margin, income tax, employee NI, and pension.

O

Off-Payroll Working

The official HMRC term for IR35, specifically the Chapter 10 ITEPA 2003 rules applying to medium and large private sector clients since April 2021.

P

PAYE

Pay As You Earn — the UK system of deducting income tax and NI at source before wages are paid. All umbrella workers are on PAYE.

Personal Allowance

The amount you can earn before paying income tax — £12,570 for most people in 2026/27.

PSC

Personal Service Company — a limited company owned by a contractor, used to provide their services. The structure IR35 legislation targets.

R

Rolled-Up Holiday Pay

Holiday pay included within your regular gross pay rather than held separately and paid when leave is taken.

S

SDS

Status Determination Statement — the document a medium/large end client must issue stating your IR35 status and the reasoning.

Secondary Threshold

The employer NI threshold — £5,000/year in 2026/27. Employer NI applies at 15% on earnings above this amount.

Substitution

One of the three IR35 tests. A genuine contractor can send a qualified substitute in their place; an employee cannot.

U

Umbrella Company

A UK limited company that employs contractors on behalf of recruitment agencies — handling payroll, tax, NI, and employment rights.

Umbrella Margin

The fee charged by an umbrella company for its payroll, compliance, and insurance services — typically £15–£40/week.