Umbrella Companies Charging National Minimum Wage

[Ditch]

Hi All

I have been using a umbrella company for a few weeks and I am still a bit confused on how they calulate my pay. I have asked for an explanation but still get confused, heres what hey told me:

basic pay this is calculated by taking the amount of hours worked X £5.52 (National Minimum wage)

Your holiday pay is 10.17% of your gross figure.

Your commission is anything remaining after your basic pay and holiday pay has been calculated.

As for your expenses increasing your net take home figure you can see a substantial difference in the amount of tax and NI you have paid.

I dont understand where the National Minimum Wage comes in to it, any ideas

[sidknows]

I think they are holding back the holiday pay based on the national minimum wage and not on your actual gross salary for the week

[Ditch]

I asked them to explain again and the reply was they have to calculate it that way for the tax man, which basically means I am losing X amounts per hour, but they then claim that my expenses off set that, this is all very confusing

[damo111176]

Hi All

I have been using a umbrella company for a few weeks and I am still a bit confused on how they calulate my pay. I have asked for an explanation but still get confused, heres what hey told me:

basic pay this is calculated by taking the amount of hours worked X £5.52 (National Minimum wage)

Your holiday pay is 10.17% of your gross figure.

Your commission is anything remaining after your basic pay and holiday pay has been calculated.

As for your expenses increasing your net take home figure you can see a substantial difference in the amount of tax and NI you have paid.

I dont understand where the National Minimum Wage comes in to it, any ideas

Commission, is this another umbrella getting round normal taxation rules etc by saying you earn commission and taxing it differently, are they allowed to do this?

[ASB]

I asked them to explain again and the reply was they have to calculate it that way for the tax man, which basically means I am losing X amounts per hour, but they then claim that my expenses off set that, this is all very confusing

I don't see what you think you are losing.

Employment law requires you to have 24 days paid holiday. Obviously this has to come out of your income (same as the employer NI) so they have to deduct it first. Of course you need to ensure that you either take the holiday (paid of course) or get it commuted into salary [there is no obligation to do this].

There are 252 working days in a year - that you are entitled to be paid for. However you are only required to work for 228 of them. To be able to pay you the same rate for all 252 they have to retain 10.17% (I get 10.52%) of the 228 you do work.

There is an argument that says holiday pay can be included in normal wages and no paid holiday given although this position has been weakened by a recent ECJ ruling.

Your expense offset nothing - except expenses you have genuinely incurred. If you are claiming flat rate expenses expect problems sooner or later. You may well not get an enquiry but it you do expect some issues.

A calculation which may help, confuse or depress.

FTE on 40k. Ers NI 4450, Ees NI 3310, Tax 7410, Net 29280

Now, this only actually buys the employer 228 days at a cost of 44450. Thus this is an effective rate of 195 p/day.

somebody going to contract through an umbrella needs 25% "more" to compensate for the bits of their previous salary that were hidden for them (assuming their were no other benefits of any description). This is not a question of anybody ripping anybody off. It's simply how the system works and hides a lot of the cost of employment (everything except salary) from employees.

[Edit: The "commission" payment is probably not subject to holdiday pay rules - these only need to be paid on baic pay as sidknows explains. This is helpful in that it reduces the amount of salary "deferred" as holdiday pay - but does mean you get less when on holiday. Over year it will make no difference to the amount of net received for a given amount of effort input.]