Umbrella company workers

If you are new to umbrella company working, you may find it useful to read our page explaining some of the terminology used in the umbrella company sector, alongside this page. 

Factsheet

Umbrella companies act as intermediaries between workers and end clients or agencies. The end client or agency pays the umbrella company, who then pays you as its employee. You can read more about umbrella companies in our factsheet on working through an umbrella company. 

The factsheet: 

• includes a helpful diagram explaining how umbrella companies work
• covers common questions including around holiday entitlement, other employment rights and the availability (or otherwise) of travel expense relief 
• explains why you may have been handed over to an umbrella company by an agency in the first place
• contains a sample payslip to help demystify the sometimes confusing payslip entries
• contains a ‘ready reckoner’ to help you understand whether the pay you are being offered through an umbrella company is roughly equivalent to what you might have otherwise received once the various deductions the umbrella company has to make have been considered. We explain more about the 'umbrella company rate' that agency workers passed to an umbrella company should be offered, on our agency worker page (see example ‘umbrella company or assignment rate’).
• highlights some non-compliant umbrella company models
• includes links to more help

On the rest of this page, we look at some issues explained in the factsheet in more detail. But first we summarise some changes that are intended to tackle non-compliance in the umbrella market from 6 April 2026 and could significantly reshape the sector. 

Changes from 6 April 2026

Following consultations and policy papers on tackling non-compliance in the umbrella company market, the government has finally moved to tighten things up.

From 6 April 2026, recruitment agencies (or, sometimes, end clients) are jointly and severally liable for amounts that should have been accounted for under PAYE, on payments to workers supplied through umbrella companies. 

If you’re looking for further information, these resources from HMRC may help:

GOV.UK guidance: PAYE rules for labour supply chains that include umbrella companies from 6 April 2026  - written for a non-technical audience.

HMRC technical guidance: Updates to the Employment Status Manual from ESM2400.

Recording of HMRC webinar, covering: 

• When the new rules apply
• Who the rules apply to
• How the rules affect agencies, end clients, umbrella companies, and workers

Some likely implications for workers include:

• Umbrella companies operating differently – if you are currently being paid through a non-compliant model you may see changes to your pay and taxes. In particular, you may see some reductions in your take home pay if you stop being paid through disguised remuneration.
• Increased vetting of umbrella companies before they're added to preferred supplier lists – this could result in fewer umbrella company options and may mean workers have to switch providers, with knock-on administrative burdens, for example starter/leaver issues and breaks in employment continuity.
• Heightened reluctance by agencies and end clients to work with umbrella companies – agencies and end clients may move more workers onto in-house PAYE/direct contracts to reduce exposure. This may come with some of the administrative burdens noted above and also potential implications for employment rights. It is possible some agencies might adopt similar practices to non-compliant umbrella companies in order to pass on new costs or responsibilities – be aware of emerging risks.  

Additionally, under joint and several liability, it is likely that HMRC’s approach to unpaid tax recovery if things go wrong will change. Our understanding is that in most cases – workers should no longer be chased personally for unpaid PAYE caused by issues like disguised remuneration. However, there may still be some exceptions. For example, under Regulation 72 of the PAYE Regulations (which is not changing), HMRC can transfer PAYE liability to an employee where a payroll error has been made in good faith despite "reasonable care," or where the employee has colluded in the under-deduction.

Employment law regulation

Separate to tackling tax non-compliance, the government also wants to help protect workers from certain employment rights related abuses when they work through an umbrella company. 

Under new proposals set to come in from 2027, the government plans to regulate umbrella companies by including them in the definition of “employment businesses” under the Employment Agencies Act 1973. This means they will be regulated by the Fair Work Agency (which has absorbed the Employment Agency Standards Inspectorate (EAS)).

You can read more about these proposals on GOV.UK.

Travel and subsistence

Historically, umbrella company employees enjoyed tax and National Insurance relief on their home to work travel expenses (something not available to agency workers), due to the special type of employment contract they worked under – an ‘overarching’ contract of employment. This allowed successive work locations to be treated as ‘temporary workplaces’.

Since April 2016, this has been significantly restricted.

The current rules say that relief for home to work travel and subsistence expenses is denied where a worker:

• personally provides services to another person,
• is employed through an employment intermediary (such as an agency or umbrella company), and
• is under the supervision, direction or control (SDC) of any person in the supply chain (or the right thereof).

If all of the above apply, each engagement is treated as a separate employment for the purposes of obtaining relief for travel and subsistence. The overarching contract becomes ineffective – resulting in the same treatment already applied to agency workers.

All of this makes it more expensive for the umbrella company to employ you as they cannot claim employer’s National Insurance relief on your travel expenses. 

Non-compliant arrangements and other problem areas

There are a huge number of umbrella companies, so the marketplace is very competitive. In order to win customers and generate profits, they may sometimes turn to non-compliant and/or problematic arrangements. In particular, we understand that the following umbrella company practices are currently a risk for low paid workers:

Elective deduction model

As explained on our dedicated elective deduction model page, in this model, workers are treated like an employee for tax purposes and like a self-employed person for all other purposes. While it is technically possible to have a different employment status for tax law and employment law, the law looks behind labels and paperwork to the facts of the arrangement, meaning this artificial split probably does not work.

Wage theft

In particular, non-payment of accrued holiday pay. If workers are not on a ‘rolled-up’ system and leave an umbrella company having taken fewer holidays than they are entitled to, they should be paid in lieu of the untaken holiday – but it is our understanding that this does not always happen. There can also be problems if holidays aren’t taken by the end of the holiday year. Guidance on GOV.UK is clear that employers, including umbrella companies, need to make certain that they are communicating transparently with their workers regarding the possibility of losing paid holiday. Read about recent reforms to the holiday entitlement and pay regime for irregular hours or part year workers, on our website here.

Mini-umbrella companies

This model sees the formation of lots of individual companies, often with foreign nationals as directors. On the face of it, all is well, as workers are having PAYE operated. However, in the background, they are being put into mini companies, where the employment allowance is being claimed inappropriately. Despite an HMRC spotlight (on GOV.UK), and media/press attention, we are still hearing of people seemingly in mini umbrella companies – a warning sign is if your payslips have different PAYE references. 

Make sure you are not in one – you will never be with any one employer long enough to accrue certain rights, and you will have an unusual and fragmented employment record, which could impact on you in many ways (for example, on your ability to get a mortgage or a loan). Further guidance, which should be useful for workers, can be found on GOV.UK.

Skimming

Some umbrella companies take extra amounts from the assignment rate before arriving at a worker’s gross pay. There has recently been an example where an extra £2 per pay period was wrapped up in a deduction called ‘employment costs’ – making it very hard to spot.

Payroll-fraud

It would appear that some umbrella companies are calculating and taking deductions from people’s pay and either not paying them over to HMRC at all or are paying over reduced amounts (by understating workers’ pay figures in their submissions to HMRC thereby reducing the tax/National Insurance  amounts that are calculated and that they pay over). 

If you work through an umbrella company, it is a good idea to check your personal tax account regularly to make sure that the pay and tax details being submitted to HMRC by the umbrella company match your payslips. If you don’t have it set up on your phone yet, HMRC’s App allows you to check what has been reported in terms of employer payments, tax and National Insurance contributions in just a few clicks. The App may even be able to display the latest real time payroll information from your employer, before you get your payslip.

Growth share schemes

A growth share scheme is where an employer offers employees a share in the capital growth of the company. Growth schemes are usually used to help attract and retain the best people. They bring together the interests of the employer and employees by giving employees a sense of ownership of the company.

We are aware of a case where an umbrella company employee was offered a minimum wage salary (generating a small tax and National Insurance liability), with the remaining amount transferred into a growth share scheme. They were told that any proceeds should be taxed as capital, enabling the use of their capital gains tax (CGT) annual exemption, and the lower rates of capital gains tax. This resulted in them paying less tax than if they were just given normal employment income.

A growth share scheme, if set up and dealt with in the right way, can be a legitimate way of incentivising employees to help stimulate growth in certain companies. However, it is hard to see how this might work in the context of umbrella companies. If the reason for the growth share scheme is simply to avoid giving you normal taxable employment income, it is possible HMRC will say this is tax avoidance.

Non-taxable payments

Some umbrella companies set up arrangements where, instead of receiving normal taxable pay, workers receive payment in the form of artificial 'non-taxable' loans, investment payments, grants, credits and so on. This is very likely to be disguised remuneration (tax avoidance) – we explain more about it in our dedicated page.

Cloning and cyber attacks

Cloning and cyber-attacks are two risks for workers to be aware of.

Umbrella company cloning appears to have the aim of deceiving members of the supply chain, in order to commit fraud. For example, a recruitment agency may be tricked into sending payments to a clone of the umbrella company, rather than the genuine umbrella company. The genuine umbrella company will not receive the necessary funds to allow it to pay its workers.

Cyber-attacks can mean that umbrella companies have to take systems offline, meaning they cannot pay workers. Such attacks can also place the personal data of workers at risk.

Missing pension contributions

Is your umbrella company deducting pension contributions from your wages? If so, check they are paying them over to your pension scheme. This should be on top of their employer contribution.

Under the auto enrolment regime, employees and employers should, between them, contribute 8% of ‘qualifying earnings’ to a workplace pension. You will need to allow some time for the contributions to be recorded by your pension scheme. After that, if there appears to be some money missing from your pension pot, your first course of action should be to contact your umbrella company to ask what has happened.

If your query is not resolved to your satisfaction, you should tell The Pensions Regulator (TPR) so that they can investigate. The Pensions Regulator works to ensure employers meet their auto enrolment responsibilities and pay the correct pensions contributions into the scheme on behalf of their staff. It can penalise employers if they fail to do this.

Non-payment of wages 

We have previously been contacted by someone who worked for an umbrella company that was only paying the national minimum wage and not the much higher hourly rate that they were expecting for the role.

As we set out in our factsheet, most umbrella companies structure people’s pay in the form of a minimum wage element and a (taxable) ‘discretionary’ bonus element to make up the wage to match the value of the work. If your umbrella company does this, it should be set out in your employment contract. One of the reasons for this is to help protect the umbrella company in the event of non-payment by the agency or end client. It is our understanding though, that in the vast majority of cases, the ‘discretionary’ bonus element is routinely paid and is taxed as normal pay.

However, in this case, no discretionary bonus was paid. The extra money they were expecting simply didn’t arrive.

If this happens to you, first ask the umbrella company for an explanation as to the non-payment. If they say this is because the agency or end client has defaulted on paying them, then you should check this with the agency or end client. This will help you to get more information about the circumstances, which will then help you to decide your next steps.

If there is no reasonable explanation, then you should seek some advice from Acas as to whether non-payment could count as an unauthorised deduction from wages. There is more information on checking deductions on the Acas website. 

Lack of payslips

Checking your payslips regularly, rather than just relying on the amount of net pay you receive in your bank account looking about right, will help you spot if there are any problems with the way your employer is dealing with your pay and taxes.

Although not actually required by law, most employers do include helpful information on payslips like the tax code in operation, and year to date figures, to aid transparency and help you reconcile the figures. If your payslips do not have this information on them or are hard to follow, then ask yourself why. Similarly, if you struggle to get your hands on your payslips in the first place – again – why is this?

One complaint we hear a lot is ‘I’ve left my employer and I’ve lost access to all my online payslips’. It is a good idea to try and save copies of your payslips as they are published. However, if you haven’t done this, speak to your ex-employer on this – some systems have admin settings that can be changed to give ex-employees certain permissions for a period of time.

Lack of pay rate transparency

Is your umbrella company paying you at the correct rate and are they being clear in their explanations and paperwork about the differences between any different rates you have been quoted? 

There have now been a few cases looking at the issue and whether confusion over the assignment rate and gross pay rate constitutes an unlawful deduction from wages, including this recent employment tribunal decision (on GOV.UK) that an umbrella company was not making an unlawful deduction from wages, and this one (on GOV.UK), where the decision went the other way.

Salary sacrifice

We know many umbrellas offer these arrangements, particularly for pension contributions.

By using a salary sacrifice arrangement, an employee pension contribution (usually given tax relief but not National Insurance relief), is turned into an employer contribution – which is given both types of relief. So, salary sacrifice can generate National Insurance savings on the amount of salary sacrificed for both employees and employers. 

Some employers go further and will share the employer National Insurance saving with their employees rather than keeping it for themselves. While there are no rules governing the activity here, and employers do not actually have to offer salary-sacrifice in the first place, it might be worth a conversation with your umbrella to make sure their approach and your expectations are aligned.

The umbrella company marketplace is constantly changing so there may well be other issues and arrangements that we have not covered here. Not all umbrella companies present problems for workers – indeed, some are well-run and take worker welfare seriously. But you should ensure you check any arrangements carefully.

If you are in an umbrella arrangement that you do not understand, or that seems different to what we have covered here, please let us know, as this will be very useful to feed into our work.

What to do if you have concerns

Umbrella companies can be confusing – even if they are fully compliant and take their responsibilities very seriously. Issues can sometimes be down to a misunderstanding of how umbrella companies work, rather than because they are doing anything wrong. Speak to your umbrella company for clarification in the first instance. If you are unsure about what you are being told, getting independent advice is highly recommended, for example from TaxAid.

If you still have concerns about your umbrella company – assuming you have fully researched the issue and have satisfied yourself that your umbrella company is non-compliant – you could:

• If your umbrella company is accredited, let the relevant body know. 
• Consider leaving the umbrella company concerned and finding a different umbrella company to work through. Obviously, this may be difficult if the ‘umbrella comes with the job’ and you cannot easily find another job and rely on your earnings. 
• If the work was found through an agency, who, in turn, pointed you towards the particular umbrella company to work through, they should be informed about the situation. It is important that they know if the umbrella company they are pointing workers to is operating a non-compliant model. 
• If you are unhappy with the way your agency deals with the situation (for example, they insist you must continue to work through the umbrella company) then you should consider complaining to any trade body that the agency belongs to (for example the Recruitment and employment Confederation (REC) or the Association of Professional Staffing Companies (APSCo))
• You should try and warn any friends or colleagues that may also be working through an umbrella company about what has happened and encourage them to self-check their positions.
• If you suspect tax irregularities, you might want to report the umbrella company to HMRC so that their practices can be investigated.

Employment rights issues?

Until any new regulation comes in, you will need to rely on existing support and enforcement routes, including:

• HMRC’s National Minimum Wage team – for underpayment of minimum wage issues
• The Fair Work Agency (which has absorbed the Employment Agency Standards Inspectorate and the Gangmasters & Labour Abuse Authority) – which may be able to assist if your issue overlaps with agency regulation or if your sector falls under the gangmasters remit including: agriculture, shellfish gathering, food processing and packaging
• Employment Tribunals – the main route for enforcing holiday pay and other rights (though this process can be costly and complex)

The Fair Work Agency is also to be given new powers to enforce holiday pay, though the timeline for this is still to be confirmed.

Practical help and support for workers in umbrella companies

There is some official GOV.UK guidance on working through an umbrella company. This has been produced to help workers better understand how they will be engaged, how their pay is made up and what employment rights and tax obligations they have. There are further guidance documents and products in the umbrella company collection on GOV.UK that workers may find helpful. 

On our page on finding a good umbrella company we offer some tips on how to find a safe, compliant umbrella company.

HMRC’s online tool

HMRC have released an online tool that can help umbrella company workers understand whether their pay and deductions are being handled properly. 

As such, HMRC’s tool asks you for the assignment rate. It asks some other questions about your circumstances, applies some assumptions and then produces an estimate of what your gross and net pay should be.

The tool allows you to ‘follow the money’, giving you visibility over things like how the umbrella company should be dealing with your pay, including holiday pay and how much should be deducted from the assignment rate for employment costs to spot ‘skimming’. Importantly it provides you with valuable information about how your net pay should be calculated that will help you detect things like disguised remuneration.

SafeRec payslip checker

If you need additional reassurance that your umbrella company is dealing with your pay and taxes correctly, you can request a free ‘payslip audit’. The payslip will be audited by SafeRec software, which has kindly been made available to LITRG for free.