The difference between an assignment rate and worker’s gross pay is one of the most common causes of confusion amongst workers who are new to umbrella employment.
When you contract via a PAYE umbrella company, you are an employee of the umbrella company, and the umbrella company is your employer. All employers must pay employer’s National Insurance Contributions (NICs) on payments made to their employees. This cannot be deducted from worker’s pay and it is therefore built into the assignment rate.
The assignment rate includes employment costs such as employer’s National Insurance, holiday pay, apprenticeship levy, and pensions contributions. Such costs should always be factored into the assignment rate quoted by the agency because, as employers, umbrellas are legally obliged to pay them.
Why is there a difference between a worker’s assignment rate and gross pay?
As with employer’s NICs, the money to cover any employment costs, including wages, all comes from the rate charged by the umbrella company to the agency or end client.
Umbrella companies must also allow for:
- 12.07% Holiday Pay (this can be advanced to you each week, or accrued)
- 0.5% Apprenticeship Levy (when umbrella’s total payroll reaches a certain level)
- 3.0% Employer Pension contribution (this is paid into the workers workplace pension)
This is why an assignment rate is usually much higher when a worker contracts through an umbrella company, as it needs to cover all of these costs.
If a worker was to be employed directly by the agency or end client, his or her PAYE assignment rate would just cover your wages, and the agency or end hirer would pay the other employment costs.