Sombrilla Umbrella - dodgy calculation needs help!

[Steven@Parasol]

By law, you are entitled to be paid £5.80 (NMW) for each hour you work. However, HMRC allows the NMW to be calculated by taking the total of your “basic pay” and travel & subsistence expenses. Therefore, you need to add these two figures together and then divide by the number of hours that you work.

The issue that you have is that although you may receive more net pay, you may not be paying enough NIC so in the future your ability to claim certain state benefits (like a state pension) could be jeopardised. A good umbrella company will not reduce your basic pay below NMW, to ensure that your future entitlement to state benefits are protected.

HMRC have recently launched a consultation to ask for views about continuing to allow NMW to be made up of both basic pay and travel & subsistence expense as they view this as an abuse.

[original PM]

Your umbrella company have to pay you NMW for all the hours you work.

Given your rate of £8 per hour and taking into account Employers NI and the umbrellas fee you would be better of being paid PAYE directly by the agency.

I would say in effect they are lying to you to get your business.

[NotAllThere]

You do understand that out of your £8 an hour, first, they deduct any expenses you've claimed, then they deduct their fee, then they deduct the employer NI, employee NI and income tax. What's left they give to you, plus the expenses amount.

As far as I know, brollies aren't exempt from NMW. If you push this, though, you'll end up with them disallowing your expenses in order to boost your pay to NMW. Which means you'll end up with less cash.

The legalities could be interesting.

btw, you know the agency is probably being paid £20 an hour for your work?

[MalaveCare]

Hi,

I have enquired with Sombrilla a calculation of how much money i can take home, as I need to join an umbrella company.

There calculations, seem weird to me as it doesnt account for NMW. It works out at £5.48 instead of the £5.80. Could someone help me to understand this better? My rate is £8.00 an hour. According to their calculations, if my gross taxable pay is £205.60, then based on a 37.5 hour week, that's only £5.48 an hour. That's below the minimum wage. Is that legal?"

This is the umbrella response: You are not earning minimum wage so this is not taken into account for your salary.



It is only a figure that is used as a basis for expenses to be applied to your earnings.

We have to leave a certain amount as a salary so you can pay tax and National Insurance.

The rest of your earnings are allowed to be set off as expenses.

Unfortunately in your case this is £74.40 of allowable expenses.



What you earn £300.00 per week is broken into sections

Salary – allowable expenses - fees = Gross wages

Gross wages – PAYE = Net wages

Net wages + allowable expenses = Take home pay



A normal employee has all the salary applied to PAYE

Salary – PAYE = take home pay



By allowing expenses you pay less PAYE and are able to take home a higher percentage of your salary.