Glossary - Key Umbrella Terms
Take a look below to find out more about some of the key umbrella terms and phrases surrounding umbrella company employment.
Use the Danbro Umbrella Terms Glossary to understand all the key terms and phrases related to contracting, umbrella employment, and compliance.
If you’re a contractor looking into umbrella contractor solutions, then our up-to-date Umbrella Term Glossary is the ideal starting point when looking into your umbrella PAYE options. Understanding the key terms allows you to make the right decisions for you and navigate your way through umbrella company sites with confidence, clarity, and ease.
Glossary
Agency PAYE
With agency PAYE (Pay As You Earn), a contractor gets employed by their employment/recruitment agency for the duration of the contract they have with their end client. They’re paid direct, through the agency’s payroll. Unlike the continuity of employment between contracts that umbrella companies provide, an agency PAYE worker’s employment ends when their contract with their client finishes. What’s more, agencies tend to offer lower rates to their own PAYE workers. That’s in contrast to the often uplifted rates offered to contractors employed by umbrella companies.
We’ve written about the differences between Agency PAYE and Umbrella Employment here.
Apprenticeship Levy
The Apprenticeship Levy came into force in April 2017. It means that all companies whose annual wage bill exceeds £3m are expected to pay a percentage of their payroll costs to HMRC. That money is then earmarked for the training of apprentices. The idea being that those employers who commit to training will be able to get back more than they put in by training sufficient numbers of apprentices.
The Apprenticeship Levy is payable through PAYE. It’s to be paid alongside Income Tax and National Insurance contributions and will show as a company deduction on your reconciliation sheet. Each employer (including those operating multiple payrolls) receives an annual allowance of £15,000, which they offset against their levy payment.
Approved Supplier List
In the context of our industry, an Approved Supplier List (ASL) is a list of umbrella companies that have been vetted and approved by a recruitment agency or end client to provide payroll services to contractors and freelancers.
APSCo
APSCo stands for the Association of Professional Staffing Companies. Any umbrella company accredited by APSCo is committed to ethical conduct, professional standards, and legislative compliance across the recruitment supply chain. For further information, visit the APSCo website.
Compliant Provider
A compliant umbrella provider is an umbrella company which operates fully within the UK’s legal and regulatory framework. Compliant umbrella companies ensure that all payroll, tax and employment practices meet the required standards.
Continuity of Employment
As a contractor, you may have multiple end-clients, with contracts running simultaneously. But with an umbrella company, you’ll only ever have one employer. Your contract will persist even when looking for a new assignment. As an employee, continuity of employment will make it easier to get credit or apply for mortgages.
Defined Benefit Pension
Defined benefit pension schemes tend to be workplace pensions which are arranged by your employer. They can also be called ‘final salary’ or ‘career average’ pension schemes. For further information on types of pension schemes, visit the government website.
Defined Contribution Pension
Defined contribution pension schemes can either be put in place by yourself or your employer. This type of pension is often either a personal or stakeholder pension. They can sometimes be called ‘money purchase’ pension schemes.
Employer's Liability Insurance
Employers’ liability insurance is a mandatory type of coverage for most businesses in the UK, including umbrella companies. It protects businesses against claims made by employees who have been injured or become ill due to their work. This insurance covers the legal costs and any compensation that might be owed if an employee, including those under the umbrella company’s employment, experiences a work-related injury or illness. It ensures that the company is compliant with the law. Employer’s liability insurance provides essential protection for both the business and its employees.
Employer's National Insurance
All employers are legally obliged to pay Employer’s National Insurance to HMRC. Along with other deductions, Employer’s NI, must be paid to HMRC by whomever establishes themselves as your employer. So, under our employment umbrella, you’re our employee. Therefore, we bear the cost of employment.
What this means in practice is that the rate you’re paid for your assignment gets uplifted. This is to account for costs such as tax and Employer’s NI, etc. So, the money you take-home is similar to what a permanent employee would earn for the same job. What’s more, all the deductions required by law have been compliantly taken.
Your payslip should clearly outline any deductions, including Employer’s NI. With us, your take-home pay is completely transparent, with no hidden fees. Hence the importance of selecting a consistent and compliant umbrella provide.
For more information on how your payslip and reconciliation sheet are calculated, read our blog post.
End Client
In the context of umbrella employment, the ‘end client’ is the ultimate beneficiary of a product or service provided by a contractor. The end client provides the work and sets the project requirements for the contractor. The end client then pays the agency for the contractor’s services. It is important to note that the end client is not the employer. The contractor’s umbrella company is their employer. They are responsible for paying the contractor, handling their taxes, and providing statutory benefits.
FCSA Accreditation
FCSA stands for Freelancer and Contractor Services Association. So, if your umbrella company is FCSA accredited, it means they have undergone a thorough independent audit to have achieved certification. This certificate ensures that the company operates in full compliance with UK legislation for tax, employment, and regulatory laws. FCSA certification signifies to contractors that an umbrella company is ethical, reliable, and operates to high standards. For more information, visit the FCSA website.
IIP Accreditation
IIP stands for Investors in People. IIP are a UK-based organisation that provide a framework for improving business performance through better people management. If an umbrella company is accredited by IIP, it means that the company meet high standards in leadership and effective people management. Find out more, here.
IR35
IR35 is a tax law that targets disguised employment.
Disguised employees are those who falsely position themselves as limited company contractors. They often do this to pay less tax, something HMRC sees as tax avoidance. HMRC introduced IR35 to help decide whether contractors are working through their limited companies correctly. The legislation tends to concern freelancers and contractors who provide their services via Personal Service Companies (PSCs).
Read our blog post which outlines everything you need to know about IR35.
ISO Accreditation
ISO accreditation refers to the certification of an organisation’s management systems, processes, or products. Accreditation is conducted by an independent, external body to ensure they meet the standards set by the International Organization for Standardization (ISO). ISO is a globally recognised body that develops and publishes standards to ensure the quality, safety, efficiency, and consistency of products, services, and systems across various industries. For more information, visit the ISO certification website.
Loan Scheme
Loan schemes are often referred to as ‘disguised remuneration’ schemes. They’re tax avoidance arrangements which are used by some people to avoid paying Income Tax and NICs.
Scheme users get paid their income in the form of loans. However, these loans are not intended to be repaid, and therefore ought to be taxable. HMRC has always maintained that loan schemes do not work.
National Insurance Contributions (NICs)
National Insurance contributions are a deduction taken from an employee’s wage through PAYE. NICs fund state benefits and services. These include the NHS, state pensions, unemployment benefits, and other welfare programmes.
Non-compliant Umbrella Companies
A non-compliant umbrella provider is an umbrella company which does not adhere to the UK’s required legal, tax and regulatory standards. These umbrella companies may engage in unethical or illegal practices that can put you as a contractor at risk. Using a non-compliant umbrella company could out you at risk of unexpected tax bills, penalties, or even loss of holiday and sick pay. For more information on how to ensure you avoid non-compliant umbrella companies, read our free guide.
Overarching Contract
An overarching contract is a special type of employment contract. It links together a series of separate assignments. Under this agreement, temporary workers become employees of the employment business.
Personal Allowance
A Personal Allowance is the amount of income you’re allowed to earn before you start paying tax. The standard amount currently (as per the 2026/27 tax year) stands at £12,500. This allowance is frozen until April 2028.
According to HMRC, if you claim things like ‘Marriage’ or ‘Blind Person’s’ Allowance, your Personal Allowance may be bigger. Likewise, it’s smaller if your income is above £100,000.
To learn more about Income Tax rates and Personal Allowances, click here.
Personal Service Company
Many contractors provide services to clients via their own limited companies. In tax talk, this is often referred to as a Personal Service Company, or PSC.
A PSC is generally defined as a limited company with a sole director – the contractor. That person owns all – or the majority of – the shares. PSCs provide professional services delivered by an individual, direct to a client, or via an agency.
Preferred Supplier List
A Preferred Supplier List (PSL) is a list of umbrella companies that have been vetted and approved by a recruitment agency or end client to provide payroll services to contractors and freelancers. Unlike an approved supplier list, the PSL consists of umbrella companies which the agency/end client actively recommends to their contractors.
Professional Indemnity Insurance
Professional Indemnity insurance protects professionals and businesses from financial losses and legal claims arising from mistakes, negligence, or breaches of duty in your work. It is also commonly referred to as PI insurance. It covers legal costs and any compensation that may be owed if a client claims they have suffered a financial loss due to errors, omissions, or inadequate advice provided by the professional.
Public Liability Insurance
Public liability insurance is a type of coverage that protects you, the contractor, from claims brought against you by members of the public or clients. If, during your work, you accidentally caused injury to someone or damaged property, this insurance helps cover the legal costs and any compensation that might be required. In short, it safeguards you from potentially costly claims that could arise from unforeseen incidents while on the job.
Reconciliation Sheet
A reconciliation sheet is a detailed financial document used by umbrella companies. It tracks and explains all income, deductions, and payments related to a contractor’s work, ensuring everything is accurately accounted for.
Click here for our guide to your payslip and reconciliation sheet or read our breakdown |
SDC Status
SDC stands for Supervision, Direction or Control. SDC status is the classification of whether a contractor is subject to supervision, direction or control in how they perform their assignments. This status is used to assess how a worker should be taxed and whether they are eligible for certain tax reliefs or benefits. It is important in determining whether a contractor is inside or outside IR35. If a contractor is deemed to be under SDC, they are typically considered to be working in a manner similar to an employee. This affects their tax treatment, such as being subject to PAYE (Pay As You Earn) tax and National Insurance contributions without being able to claim certain expenses like travel and subsistence.
Statutory Employment Rights
Statutory employment benefits are basic legal rights that all employees in the UK are entitled to under employment law. Statutory Employment Rights include:
- Right to a written statement of employment terms.
- National minimum wage.
- Holiday entitlement.
- Sick pay.
- Maternity, paternity and parental leave.
- Protection against unfair dismissal.
- Redundancy pay.
- Right to a safe working environment.
- Protection from discrimination.
- Right to request flexible working.
- Right to join a trade union.
As an umbrella employee, you are entitled to all these rights.
Temporary Fixed Contract Assignments
Temporary fixed contract assignments are work arrangements where an employee or contractor is hired for a specific period or project with a defined end date. These assignments are typically used to cover short-term needs. This includes filling in for an absent employee, handling a seasonal workload, or completing a specific project. Once the contract period ends or the project is completed, the assignment concludes. After that, the employment or engagement typically terminates unless extended or renewed.
Umbrella Company Margin
The umbrella company’s margin is the fee that an umbrella company receives for its services. The margin gets deducted from a contractor’s gross earnings. The margin covers payroll processing, tax handling, and other administrative tasks. It directly impacts the contractor’s take-home pay and is typically a fixed amount deducted before the net pay is calculated.
Umbrella Take-Home Pay
Your take-home pay as an umbrella company contractor is the amount of income that you receive after all the necessary deductions have been made from the gross salary. These deductions can include income tax, National Insurance contributions (NICs), pension contributions, and student loan repayments.
To see a detailed breakdown of how we work out your umbrella take-home pay, click here.
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