Supply Teachers and the Umbrella Pay Trap

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Supply Teachers and the Umbrella Pay Trap

When you decide to start work as a supply teacher, one of the most frequently asked questions is ‘What will my daily rate be?’

Pay varies widely between agencies and regions, making it tempting to choose the agency that promises the highest rate. But what many teachers don’t realise is that the way they’re paid can significantly affect their actual take-home earnings.

Some agencies use umbrella companies to process payroll, which means additional deductions may be taken from your pay. While these companies handle tax and payroll administration, the deductions can sometimes come as a surprise to teachers who expected to receive the full daily rate they were quoted.

This blog will explain how umbrella company pay works, the key deductions to look out for, and how to make sure you’re fully informed before registering to work with an agency.

 

What Are Umbrella Companies?

Umbrella companies are often used by recruitment agencies to process pay for supply teachers, but many teachers don’t fully understand what this means for their earnings.

The advantage for supply agencies is that the umbrella company takes care of all the complicated paperwork, taxes, and legal requirements, letting the agency focus on finding the right candidates without worrying about the administrative details.

When you’re paid through an umbrella company, you’re technically an employee of that company, not the agency. Instead of getting paid directly by the agency, the umbrella company handles your wages, taxes, National Insurance, and other deductions.

While this might seem like an efficient way to process your pay, it often leads to higher costs for you as a teacher. In fact, you might not even realise you’re working through an umbrella company until you check your payslip and notice deductions you weren’t expecting.

 

How Teachers End Up Losing Out

Umbrella companies may seem like an easy solution, but they often come with unexpected costs that eat into your earnings. These companies deduct hidden fees, including charges for processing your pay and employer’s National Insurance contributions, reducing your overall earnings. These fees can quickly add up, meaning the amount you actually take home is far lower than you were expecting.

To make matters worse, many agencies use “uplifted” pay rates to disguise these losses. The idea is that the agency offers a higher daily rate to make up for the deductions. While this sounds reassuring, the reality is that even with the uplifted rate, teachers are still left with less money in their pockets than they were promised.

So, what exactly are these hidden costs?

 

Apprenticeship Levy: This is a charge that umbrella companies pass on to you, which is meant to fund apprenticeship programmes. While it’s a government initiative, it still comes out of your pay, even if you’re not benefiting from it.

Employer’s National Insurance: Normally, your employer would pay the Employer’s National Insurance contributions. But with an umbrella company, this cost is passed on to you. This means, in addition to the Employee’s National Insurance you pay, you’re also covering the employer’s share.

Employer’s Pension: The umbrella company is also required to contribute to your pension, but this contribution is deducted from your pay. On top of that, you still have your own Employee’s Pension contributions.

Umbrella Company Margin: This is the fee the umbrella company charges for processing your pay. Essentially, this is their profit, and it’s deducted from your pay.

 

These deductions can quickly add up, meaning you’re losing out on a substantial amount of money over time. The uplifted pay rate some agencies offer doesn’t make up for these costs, leaving you with less than you were promised.

 

The Real Cost

Most supply teachers focus on their daily rate when comparing agencies, but the real question is, ‘How much will you actually take home?’ Unfortunately, many teachers working through umbrella companies don’t realise the impact on their earnings until it’s too late.

To make this clear, let’s look at three example payslips for 3 part time supply teachers, working the same number of hours within a month and across the year – with an average of working 3 or 4 days per week across 39 weeks. The only difference? How the teacher is paid:

 

  1. Blue Payslip – Teacher is paid directly by the agency (no umbrella company involved).
  2. Green Payslip – Teacher is paid through an umbrella company, at the same daily rate.
  3. Pink Payslip – Teacher is paid through an umbrella company, but with an ‘uplifted’ daily rate of £10 extra per day.

 

Teacher is paid directly by the agency (no umbrella company involved).

An Apple A Day Payslip Without Umbrella Company Deductions.

 

Teacher is paid through an umbrella company, at the same daily rate.

A Payslip Showing Deductions From An Umbrella Company.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Teacher is paid through an umbrella company, but with an ‘uplifted’ daily rate of £10 extra per day.

A Payslip Showing An Uplift In Pay And Umbrella Company Deductions.

 

The Green Payslip shows how much is lost when working through an umbrella company – £29.20 less each month compared to direct agency pay. Over a full school year, this teacher takes home £1,610.82 less than a teacher paid directly by an agency with its own payroll system.

While, at first glance the uplifted rate on the Pink Payslip shows a greater weekly pay, when deductions are applied, it’s a different story. Even at the higher rate, the teacher still takes home £12.39 less per month. That might not seem huge at first, but across the year, this teacher has received £859.62 less, compared to the teacher being paid directly by the agency.

These aren’t just small losses. Supply teachers work hard for their earnings, and these figures show just how unfair umbrella pay really is. The worst part is that many teachers don’t even realise these deductions are happening, making it easy to overlook just how much they’re losing each month.

 

 Why Agencies Use Umbrella Companies

If umbrella companies leave teachers worse off, why do so many agencies use them? There are several key reasons:

 

  • Less paperwork: Umbrella companies handle payroll, tax deductions, and other paperwork, allowing agencies to focus on their core business of placing teachers.
  • Save money: Agencies avoid employer obligations such as National Insurance contributions and payroll administration costs.
  • Lower risk: Umbrella companies take on the legal role of employer, reducing the agency’s responsibilities.
  • Simplified legal compliance: Umbrella companies make sure all tax and employment laws are followed correctly.

 

While umbrella companies can offer benefits to agencies, if they say it’s in your best interest, don’t hesitate to ask for further clarification on how it actually impacts your pay.

 

How to Protect Yourself as a Supply Teacher

When looking for a supply agency there are some steps that you can take to protect yourself from falling into the ‘umbrella pay trap’.

 

  • Demand transparency: Ask agencies to provide a clear breakdown of pay rates, including the PAYE rate and the ‘umbrella rate’ if applicable. Ensure you understand all deductions before agreeing to work. Request a KID (Key Information Document) which outlines your pay and deductions and includes an example payslip.
  • Compare take-home pay: Calculate your actual take-home pay after all deductions, including employer’s NI and umbrella company fees, to make informed decisions between agencies.

 

The government provides a useful umbrella company calculator to help you work out your take-home pay after all deductions. You can use it here:

 

To see the difference, compare this with a standard income tax calculator, such as the Government Income Tax Calculator or the MoneySavingExpert Income Tax Calculator. These will show you what your take-home pay would be without umbrella company deductions.

 

  • Verify pension arrangements: Confirm that the agency or umbrella company offers automatic enrolment into a pension scheme and understand the contribution rates.
  • Check for hidden fees: Be wary of unexpected charges, such as weekly fees from umbrella companies, and factor these into your calculations.
  • Consider direct PAYE options: Look for agencies that offer direct PAYE employment, which can be simpler and more transparent than working through umbrella companies.

 

At Apple A Day, we believe teachers deserve their full pay. That’s why we handle payroll in-house, with no umbrella company, no hidden cost and no unfair deductions.

 

Final Thoughts: Fair Pay for Supply Teachers

Many supply teachers find that their take-home pay is not always what they expect, due to the costs associated with umbrella companies.

While being paid through an umbrella company isn’t necessarily a bad thing, it’s essential to ensure that the uplifted rate is sufficient to cover the deductions being made. This starts with having a clear understanding of exactly how your pay is calculated. It’s essential to ask upfront how you’ll be paid and to request a full breakdown of any deductions before signing up with any supply agency.

By making informed decisions, you can ensure that you’re paid fairly.

Choosing an agency that prioritises transparency and fair pay is key. If you want to learn more about how we put teachers first when it comes to pay, contact us today.

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