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  • Rob Wilks

How an umbrella company calculates minimum umbrella rates when the NMW goes up


Every April, the government increases the National Minimum Wage (NMW) and National Living Wage (NLW). With the recent cost-of-living crisis, the government has been increasing the NMW and NLW at unprecedented rates; as of April 1st 2024, the NLW will increase from £10.42 to £11.44, an almost 10% increase.


All employers in the UK are legally bound to ensure that both the NLW and NMW are adhered to for all of their employees and reputable umbrella companies are no different. Our payroll software helps prohibit workers from being paid under the current NLW and NMW rates.


For the eagle eyed amongst you, you may have noticed that the minimum rate that an umbrella company advertises is often above these NLW and NMW figures. So why is that?

 

How an umbrella company calculates the minimum rate


The starting point is always the NLW (or NMW for those younger than 21). From here, we need to ensure that we then accommodate our employment costs on top, including the Employer’s NI, the apprenticeship levy, employer pension contributions (where applicable) and our margin.


Adding these to the NLW provides a rough minimum rate, for us to ensure we can accommodate both the NLW and the employment costs. However, the employer’s NI has a weekly allowance that we have to factor in and not all workers continue with the pension scheme. This all results in a changeable minimum umbrella rate, depending on the number of hours worked in one week.

The administration of tracking these exactly would add complexity and a huge burden on payroll teams and would likely lead to delayed payments to workers. That’s why at Clipper Contracting Group, we attempt to provide a standard minimum umbrella rate that covers all eventualities and limits the administrative burden further down the line. We aim to make our processes queryless.


Whether a worker does 70 hours in a week or only 10 hours, our minimum umbrella rates will work in all eventualities. And where the employment costs are lower it is the worker that receives the additional pay; our margin remains the same regardless.

 

If your umbrella company is struggling to explain how their minimum rates are calculated, why not give us a call on 01305 233170.

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