When you work via an umbrella company like Bar2, by law, you’ll be subject to pay company overheads such as apprenticeship levy and employer national insurance contributions.
But what actually are these, and why are these being deducted from your pay?
What are company income and costs?
Company income and costs represents the total gross payment that you have been paid. This is the amount we receive from your agency or end client and shows the total value before any deductions.
Company overheads
Why am I being charged for the Apprenticeship levy?
The Apprenticeship Levy is a government deduction that employers with an annual payroll of over £3 million are legally required to pay.
As you are classed as an employee of Bar2, we as your employer are responsible for deducting 0.5% from your pay and paying it directly to HMRC to cover the Apprenticeship Levy fee. View more on how an umbrella company works.
But why are you having to account for this cost?
The short answer is you’re not.
When a contractor uses an umbrella company for their payroll, the umbrella company becomes the employer of the contractor, and the contractor becomes the employee.
As the contractor is working for an end-client, the umbrella company doesn’t benefit from any work that is undertaken by a contractor, and therefore isn’t in a position to cover the apprenticeship levy.
As a result, the apprenticeship levy are passed onto the contractor, and the recruitment agency will uplift a contractor’s pay to account for this cost – so you won’t be losing out.
Why am I paying employer’s national insurance?
Employer’s national insurance is a tax on earnings which all UK employers, including umbrella companies, are required to pay to fund benefits such as the state pension, statutory sick pay and maternity leave.
Employer’s national insurance is taken as a percentage of your gross earnings, which we will pay directly to HMRC. For the 2023/24 tax year, employer’s national insurance is 13.8% on earnings above £175 per week.
As you are classed as an employee of Bar2, we as your employer are responsible for deducting this from your pay. View more on how an umbrella company works.
However, just like the Apprenticeship levy, your assignment rate will be uplifted by your agency to account for this cost, so you won’t be losing out.
How does Employer’s Pension work?
A workplace pension is a way of saving for your retirement that’s arranged by your employer. With a workplace pension, a percentage of your pay will be placed into the pension scheme every payday, and your employer will add a contribution.
As your employer, legally we must automatically enrol you into a workplace pension scheme after 12 weeks of continuous employment, should you fit the criteria. You can opt-out to this if you wish. View more on how an umbrella company works.
Should you choose to opt in to the workplace pension scheme, your payslip will display a 3% employer’s contribution deduction which will be deducted directly from your assignment rate.
Just like the Apprenticeship levy and employer’s national insurance, your assignment rate will be uplifted by your agency to account for this cost, so you won’t be losing out.
What is company margin?
Company margin is a fee umbrella companies charge for you to use their service to cover business costs such as the administration of running your payroll.
This margin will be deducted weekly or monthly, depending on your pay frequency, and is inclusive of accident insurance.
The rate at which you will be charged will depend on your agency or end client.