How to guard against salary skimming when using an umbrella company

With salary skimming once again making the news, contractors need to be aware of the ways in which their earnings can be taken advantage of. Understanding your payslip and knowing what should and shouldn’t be on it is the first place to start, writes Kris Simpson, UK country manager at Cool Company.

What is salary skimming?

Salary skimming can happen when contractors work with unscrupulous umbrella companies. It’s the process whereby additional, unexpected charges are levied for a contractor’s work. So, in the best possible light, it can be regarded as a lack of transparency but in the worst, it is plain and simple scamming. This often goes unchecked because contractors want to trust their umbrella company, so don’t always check the details of their payslips thoroughly.

What should a contractor payslip look like?

If you are working with an umbrella company, your payslip may have more details listed than you might ordinarily be familiar with.

It will detail your earnings and your deductions, but you will also see a few additional details you need to understand. The important thing is to ensure that you are aware of what these deductions are -- and that you agreed to them in advance. If any unrecognised or unitemised  deductions appear on your payslip, or any funds are unaccounted for, you should immediately contact your umbrella company.

So, what do you actually WANT to see on your payslip?

Payslip features contractors should always check

Personal Details

At the top (or bottom) of your payslip you should find all of your personal details, including:

  • Full name
  • Home address (sometimes, depending on your employer)
  • Payroll number
  • Tax code
  • The name of the company that is paying you
  • National Insurance number
  • The period the payslip relates to.


Every umbrella payslip should include details of:

  • Earnings before deductions – ‘Gross Taxable Pay’
  • Earnings after deductions – ‘Net Pay’
  • The number of hours worked, multiplied by National Minimum Wage.

Details & Deductions

This is what you need to look at most closely to guard against skimming. Your deductions should include:

  • The amount that the umbrella invoiced the agency/client
  • The umbrella ‘margin’ – the term used to describe the money the umbrella company retains to cover the cost of administration and insurance. This amount should be the same for all contractors working with that same umbrella. This fee you pay the brolly ought to have been clearly agreed with you in advance of any work.
  • Employer National Insurance Contributions (NICs)
  • Employee NICs
  • Income Tax
  • The amount of your gross taxable pay allocated to holiday pay
  • Profit- sharing bonus or commission (depending on the umbrella company). If either feature, the amount should be equal to the gross taxable pay minus holiday pay and your total hours worked at national minimum wage.  (N.B. As HMRC says: "Some umbrella companies may choose to pay the National Minimum Wage rate for all hours worked and then make up your full rate with an additional payment, like a bonus. You must still pay tax on this additional payment and your payslip must show this and all the hours you’ve worked.")

Some contractors may also find additional deductions on their payslips, depending on their circumstances. These may include:

  • Employers and Employee Pension contributions
  • Student loans payments
  • Attachment of earnings.

How do you know if your payslip is correct?

Regardless of the deductions relevant to you, the most important issue is that the numbers add up. So, you need to ask yourself: Is your net pay equal to your gross pay, minus the deductions? Are the deductions expected? Is there anything you can’t remember agreeing to?

How can you know if you’re working with a trustworthy umbrella company?

All umbrella businesses will seek to reassure contractors of their integrity. So, the only way you can be certain that you have selected the right business to put your trust in is, ultimately, to double-check yourself. In addition, many contractors look for professional accreditation. Accreditation is not a guarantee of compliance – as the government has pointed out – but no accreditation whatsoever is something that lawyers have suggested that contractors should be on guard against.

Contracting can be a great way to earn a living and since the implementation of private sector IR35 reform in April 2021, umbrella companies have played a significant role in making getting into contracting a lot easier. But it is vitally important that contractors find the right umbrella company to work with and doing that, means taking the time to check over your payslips to ensure that you are receiving every penny you are due.

Friday 11th Nov 2022
Profile picture for user Kris Simpson

Written by Kris Simpson

Kris Simpson is country manager at Cool Company where he is responsible for operations and compliance in the UK. He has more than 10 years’ experience in umbrella payroll and the recruitment sector.

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