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Are you tired of receiving the same questions from your contractors about their umbrella payslip and not knowing the answers?

If the answer is yes – never fear! We’ve jotted down the answers to some of the most common contractor questions around the umbrella payslip to help you stand out as a recruiter and develop your knowledge in the field.

Use this as your bible for answering any payslip query and we assure you that you’ll be left with satisfied contractors in no time!

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Our short, handy video provides an overview on the umbrella payslip. Stand out as a recruiter and share this link in conversations with your contractors now:

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When your contractors work via an umbrella company like Bar2, by law, they’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 their pay?

“What are company income and costs?”

Company income and costs represents the total gross payment that they have been paid. This is the amount we receive from their agency or end client and shows the total value before any deductions.

Company overheads

Young man sitting at his desk and viewing his payslip on his laptop

“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 your contractors are classed as employees of Bar2, we as their employer are responsible for deducting 0.5% from their pay and paying it directly to HMRC to cover the Apprenticeship Levy fee.

“But why am I as a contractor, having to account for this cost?”

The short answer is they’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 is passed onto the contractor, and the recruitment agency will uplift a contractor’s pay to account for this cost – so they 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 their 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 your contractors are classed as employees of Bar2, we as their employer are responsible for deducting this from their pay.

However, just like the Apprenticeship levy, their assignment rate will be uplifted by their agency to account for this cost, so they won’t be losing out.

“How does Employer’s Pension work?”

A workplace pension provides a way for your contractors to save for their retirement and is arranged by their employer. With a workplace pension, a percentage of their pay will be placed into the pension scheme every payday, and their employer will add a contribution.

As their employer, legally we must automatically enrol them into a workplace pension scheme after 12 weeks of continuous employment, should they fit the criteria. They can opt-out to this if they wish.

Should they choose to opt in to the workplace pension scheme, their payslip will display a 3% employer’s contribution deduction which will be deducted directly from their assignment rate.

Just like the Apprenticeship levy and employer’s national insurance, their assignment rate will be uplifted by their agency to account for this cost, so they won’t be losing out.

Piggy bank used for collecting money

"What is Company Margin?"

Company margin is a fee umbrella companies charge contractors to use their service to cover business costs such as the administration of running their payroll.

This margin will be deducted weekly or monthly, depending on their pay frequency, and is inclusive of accident insurance.

The rate at which they will be charged will depend on their agency or end client.

Contractor queries – we’ve got it sorted.

Being partnered with Bar2 means that you can say goodbye to dealing with the hassle of your contractor’s payroll queries. All you need to do is place your candidate and leave the rest to us!

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