Umbrella Company Glossary of Terms

New to the world of contracting? Confused about all the different terms you’ve come across? Don’t worry, we’ve got you covered! Check out our latest glossary of terms to help you navigate the world of Umbrella Companies and understand the key concepts you need to know. From IR35 to PAYE, we break down all the important jargon to help you make informed decisions and take control of your contracting career. Start your journey towards success today!

Assignment Rate

The assignment rate is the pay rate that a worker agrees to undertake a contract. The assignment rate (gross) will be subject to PAYE deductions and employment costs, if working inside IR35. Where the operative can contract as self-employed, Futurelink will not make any PAYE deductions.


Stands for Bankers Automated Clearing System and is a type of payment in the UK where funds are sent directly from one bank account to another. Since it usually takes 2-3 days for funds to clear, most umbrella companies pay by CHAPS or Faster Pay which assures payments received on the same day.

Contract of employment

A contract of employment is a legally binding agreement between an employer and employee. This would typically be used in an employment model.

Contract of Services

A contract for services is a formal, legally binding agreement between a business and a self-employment individual.

Those operatives that are self-employed provide a finite amount of work whereas an employed person is in effect providing themselves permanently. Self-employed people do not typically gain employment rights/benefits, such as pension schemes, because they are expected to pay for these provisions themselves.

Employee Benefits

When you join an umbrella payroll company under PAYE, you become an employee. As a result, you will have access to statutory employee benefits including sick pay and maternity/paternity pay. Auto-enrolment into a pension is also beneficial for the worker.

Employer’s Liability Insurance

Employer’s Liability Insurance is the cover that compensates employers should a worker (or ex-worker) suffer from illness or injury on the job – and subsequently make a claim.

Employment Costs

The employment costs consist of the Employer’s National Insurance Contributions and the apprenticeship levy (if applicable). Both are passed to the worker and are deducted from the assignment rate.

End Client

The end client is the company in the supply chain that the temporary worker works for. They usually manage the work force and determine if contract workers are working inside IR35, under the Off-Payroll rules 2017 & 2021.


Expenses refer to costs that a worker can claim back in full OR costs that the worker incurs that are tax-exempt and can be used to offset tax liabilities. Please see our expenses guide for more information.

Holiday Pay

This is based on 12.07% of your gross salary and for those on one of our PAYE solutions. It is deducted on the company side of the payslip and then usually added back on the employee side, where it is taxed along with other income. On our PAYE umbrella solution, this element can be retained by our company, upon request.


Fully compliant umbrella companies should provide employees with comprehensive insurance cover,this includes Employers Liability Insurance, Public Liability Insurance and Personal Accident cover. Futurelink can add Professional Indemnity if required.


IR35 is legislation introduced by the government in 2000 to ensure contract workers pay their fair share of tax and National Insurance. A temporary assignment is either inside or outside IR35, and it is the end client who must make a fair and accurate status determination. Where the scope of work is deemed outside of IR35, the worker and intermediary must determine if the worker meets the Intermediaries Legislation (2014).

Inside IR35

To be operating “inside IR35” means that, under the IR35 legislation, the worker is deemed an employee and therefore must pay the same tax as a permanent member of staff. As well as employee’s National Insurance, employer’s NI would also apply. So how do you know if a worker is operating inside of IR35?

Outside IR35

To operate ‘outside IR35’ means that the legislation allows workers to contract through a limited company or as a sole trader. This means that the worker can pay themselves a small salary and withdraw further income as dividends (which are not subject to NIC), whilst their limited company pays tax only on its profits. So how do you know if a worker is self-employed and falls under IR35?

National Insurance Contributions – Employees

Employees are required to pay Employees National Insurance Contributions through Pay As You Earn (HMRC’s tax system). When you use an umbrella company, you will see the Employees NI deductions on your payslip.

National Insurance Contributions – Employers

Umbrella companies cannot cover Employer’s National Insurance Contributions because they do not benefit directly from the work employees undertake. The Employer’s National Insurance Contributions are passed onto the worker and will be deducted from the assignment rate (the negotiated rate before an assignment is accepted).


Meaning ‘Pay As You Earn’, this term refers to the method of paying Income Tax and National Insurance Contributions (“NICs”) in the UK. Employers deduct and pay an employee’s taxes to HMRC.


This is the fee charged by the payroll company for processing the worker’s fee. The recruitment agency also makes a margin, but this is on top of the agreed salary that’s offered to the worker. The margin that we deduct is fully tax-deductible.

Same Day Payments 

Same Day Payments allow for the transfer of funds in minutes or hours rather than days. Most umbrella companies will have a deadline for which they can accept funds

from your recruitment agency or end client to ensure they can process the tax deductions and pay the operative on the same day. Futurelink pay using the FPS (Faster Payment Service), which allows funds to be allocated within 2 hours. Any international payments can take up to 3 working days.

Take Home Pay

Take home pay, otherwise known as net pay, is the amount the worker will receive each month after any deductions have been made, like Income Tax and National Insurance. Calculate your take home pay!

Umbrella Company

The Umbrella company usually employs the contract worker under the terms of a Contract of Employment, meaning that the individual receives all 84 statutory rights and employment benefits whilst also having the flexibility to work for a series of different end-clients. The umbrella company typically provides employment benefits such as access to pension schemes, maternity, paternity, sick pay etc.

The umbrella company is also responsible for the provision of appropriate insurance to protect the worker and meet the needs of the client. The umbrella company also undertakes all the necessary administration such as checking visas, invoicing the agency for any work undertaken, collecting payments, and calculating the amount to be paid to the freelance worker, ensuring that appropriate PAYE tax and NICs are paid to HMRC.

If you are looking to partner and outsource your payroll with a trustworthy umbrella company, offering expertise, reliability, and a commitment to excellent service. Choose Futurelink Group to experience hassle-free and efficient payroll management, allowing you to focus on what you do best – your work. #MakingWorkLessTaxing

Have a look at our understanding your payslip article for more guidance.

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