What is an umbrella company?

For agency and contract workers who are paid, or asked to be paid, through an umbrella company.

Applies to: England, Scotland, Wales, Northern Ireland Last checked against official sources: 6 October 2026

An umbrella company employs you and pays your wages when you do temporary work found through a recruitment agency.

The agency pays the umbrella company an assignment rate, and the umbrella company pays you.
Its fee, employer National Insurance, employer pension and holiday pay come off before your gross pay is worked out.
Income Tax and your National Insurance are then taken off through PAYE.
You have employee rights, such as minimum wage, paid holiday and a payslip.
Untaxed "loan" payments are a warning sign of tax avoidance.

Key facts

Your employer for agency work
Pays you through PAYE
Fees come off assignment rate
New PAYE rules from April 2026

What an umbrella company is

An umbrella company is a business that employs temporary workers and pays their wages. You find work through a recruitment agency, but the umbrella company is your employer. It runs your pay through PAYE (Pay As You Earn), which means Income Tax and National Insurance are taken from your pay before you get it.

Umbrella companies are common for temporary and contract work. Some use tax avoidance arrangements, so it pays to check yours.

How the money flows

You send your timesheet to the recruitment agency.
The agency bills the client you worked for.
The agency pays the umbrella company an agreed amount, called the assignment rate.
The umbrella company pays you as your employer.

What comes off your pay

The assignment rate is not your gross pay. The umbrella company first takes off its own costs and the costs of employing you:

Step	What is taken off
From the assignment rate	The umbrella company's fee (margin), employer National Insurance, employer pension contributions, holiday pay set aside, and the Apprenticeship Levy if it applies
From your gross pay	Income Tax, your own National Insurance and your own pension contributions

What is left is your take-home pay. This is why your pay can look much lower than the rate the agency quoted.

Your rights

Because the umbrella company is your employer, it must give you:

at least the National Minimum Wage or National Living Wage
paid holidays
a payslip
being put into a workplace pension if you qualify

Holiday pay can be paid in 2 ways. It may be added to each payment ("rolled-up holiday pay"), or worked out using your pay over the past 52 weeks.

Before you start

Your agency must give you a key information document. It should show:

which umbrella company you will be employed by
the minimum assignment rate paid to the umbrella company
what the umbrella company will take off
your minimum gross pay

Warning signs of tax avoidance

Be careful if:

part of your pay is paid separately, without tax taken off, and called a "loan" or similar
the money you get is more than your payslip shows
your umbrella company employer keeps changing without a clear reason
you are asked to sign extra agreements as well as your employment contract

Check your payslips against what you were told. You can also check your personal tax account or the HMRC app. If you think you are in a tax avoidance scheme, GOV.UK explains how to get out of one.

Changes from 6 April 2026

New PAYE rules apply from 6 April 2026 to labour supply chains that include umbrella companies. GOV.UK has separate guidance on how the new rules work.

Getting help

Talk to your umbrella company first. If that does not fix it, contact Acas or Citizens Advice for free help. You can also report tax fraud or avoidance to HMRC online.

Related guides

Where this comes from

Working through an umbrella company (HMRC and GOV.UK)

Get it done

This takes you to the official service, which is free to use.

Read the GOV.UK umbrella guidance

Common questions

Why is my umbrella pay lower than the agency rate?

The umbrella company takes its fee, employer National Insurance, employer pension and holiday pay from the assignment rate before working out your gross pay.

What should my agency tell me before I start?

A key information document showing the umbrella company, the minimum assignment rate, what will be deducted and your minimum gross pay.

How can I tell if my umbrella company is avoiding tax?

Warning signs include untaxed payments called loans, getting more than your payslip shows, and being asked to sign extra agreements.

Source: Working through an umbrella company (GOV.UK)

Checked against GOV.UK on 6 October 2026

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