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Updated on 6 April 2024

Umbrella company workers

An umbrella company is an employment business that takes on agency workers and other temporary workers as its own employees. They then have to deal with your pay, tax, and other legal obligations, just like any other employer. 

5 small wooden figures huddled underneath a small red umberella
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Umbrella companies act as an intermediary between workers and their end client or agency – an end client or agency pays the umbrella company, who then pays the worker. You can read more about umbrella companies in our factsheet on working through an umbrella company

The factsheet covers a range of issues on which workers are likely to have questions including holiday entitlement and other employment right issues, the availability (or otherwise) of travel expense relief and why they may have been handed over to an umbrella company by an agency in the first place. It includes a helpful diagram explaining how umbrella companies work, a sample payslip to help demystify the sometimes confusing payslip entries and links to more help, including an article written for IWORK, in which we explain some of the terminology used in the umbrella company sector for those new to this way of working.

The factsheet includes a ‘ready reckoner’ to help workers understand whether the rewards they are being offered through an umbrella company are roughly equivalent to what they 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’).

On the rest of this page, we look at some issues explained in the factsheet in more detail.

Travel and subsistence

Traditionally umbrella company employees enjoyed tax and NIC 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 (or an 'umbrella' contract).

Essentially, these contracts provided a framework within which a worker’s successive work locations could be turned into ‘temporary workplaces’, supporting the payment of non-taxable and non NICable home to work travel expenses to them by the umbrella company. To the extent that these expenses were paid to workers in lieu of ordinary taxable salary (as opposed to on top of it), there was also an employer NIC saving of 13.8% on the value of the expenses.

Since April 2016, the rules around relief for travel expenses from home to work if you work through an umbrella company are more restrictive than they had been before.

The April 2016 rules say that relief for home to work travel and subsistence expenses is restricted 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 the worker undertakes will be a separate employment for the purposes of obtaining relief for travel and subsistence; that is, the overarching contract is ineffective (resulting in the same approach as is already applied to agency workers).

You should note that even where travel and subsistence expenses could still be allowed for tax purposes, for example because of multi-site visits, different rules mean that an umbrella company should probably not be reimbursing your expenses on a tax and NIC free basis as part of your normal pay (apart from, possibly, client or agency reimbursed expenses).

But all of this makes it more expensive for the umbrella company to employ you as they cannot claim employer’s NIC 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 sometimes turn to non-compliant and/or problematic arrangements. In particular, at the moment (and in addition to the issues around ‘travel and subsistence’ we are aware of as described above) we understand that the following umbrella company practices are currently a risk for low paid workers:

Elective deductions model

As explained on the agency worker page (see 'Self-employed agency workers’), this is a very harsh model which does not benefit workers at all. The problem, however, is that there is not an overarching body looking after employment law (HMRC are only responsible for tax law). This makes the question of who people should complain to if they disagree with their employment law status unclear. If you are affected, as a first step, you could try talking to ACAS or the Pay and Rights helpline.

Wage theft

For example, non-payment of holiday pay that they have accrued. If a worker is not on a ‘rolled-up’ system and leaves 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. It seems there can also be problems if holidays aren’t taken by the end of the holiday year. New guidance is clear that employers, including umbrella companies need to make certain that they are transparently communicating 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 the worker will be having PAYE operated. However, in the background, workers are being put into mini companies, where the employment allowance is being claimed inappropriately. Despite an HMRC spotlight, and media/press attention, we have recently heard of someone seemingly in mini umbrella companies – the key giveaway is that each of their payslips had a different PAYE reference. Make sure you are not in one - you will never be with any one employer long enough to accrue any 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


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 ‘employment costs’.


It would appear that some umbrella companies are calculating and taking deductions from people’s pay and either not paying them over at all or are paying over reduced amounts (by understating workers’ pay figures in their submissions to HMRC thereby reducing the tax/NIC 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 NIC 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 recent case where an umbrella company employee was offered a NMW salary (generating a small amount of tax and NIC) with the remaining amount transferred into a growth share scheme. The person involved was told that any proceeds will be taxed as capital in their hands, which enables the use of their capital gains tax (CGT) annual exemption, and the lower rates of CGT. This results 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, where the characteristics of the underlying business are different and there is no real commercial rationale. 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 workers’ 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 TPR 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 recently been contacted by someone who works for an umbrella company that was only paying the national minimum wage (NMW) and not the much higher hourly rate that they were expecting (that is, the going rate for her 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 has happened, you should 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. If the matter cannot be resolved, you may be entitled to make a claim to an employment tribunal

Lack of payslips

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

When checking them, note that 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 are not ‘fulsome’ 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-employee’s 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 correct rate constitutes an unlawful deduction from wages, including this recent employment tribunal decision that an umbrella company was not making an unlawful deduction from wages, and this one, where the decision went the other way. 

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.

What to do if you have concerns

If you have concerns about an umbrella company:

  • Consider leaving the umbrella company concerned with immediate effect 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 REC or APSCO) or the Employment Agency Standards Inspectorate.
  • 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 your pay and taxes have been manipulated, you may decide to report the umbrella company to HMRC so that their practices can be investigated.

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.

More information on umbrella companies

The government have produced some 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.

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

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