Agency Umbrella vs PAYE: NHS Pay Breakdown 2026/27

Last updated: 28 September 2026 · Figures verified against the NHS Employers 2026/27 pay circular.

By the NHS Bands Pay editorial team

The three pay models

Most agency nurses are inside IR35, so limited-company contracting is rarely viable — the realistic choice is PAYE or umbrella. (Bank work is a different route entirely: see agency vs bank.)

The assignment rate: the number that misleads

When an agency quotes "£30 an hour", that is the assignment rate — what the trust pays per hour for your labour, and roughly what the agency receives. It is not your hourly wage under either model. Under PAYE it is close to your gross (the agency absorbs its own employment costs from its fee element); under umbrella, a stack of employer costs is carved out of it before your gross pay exists. Confusing the assignment rate with take-home is the single commonest agency pay complaint.

Umbrella maths, step by step

For each hour (or week) at assignment rate R, the umbrella calculates:

1. Start with the assignment rate R.
2. Deduct employer costs: employer National Insurance (~15% above the threshold), apprenticeship levy (0.5%), employer auto-enrolment pension contribution, and the umbrella margin (typically £15–£30/week).
3. Result = your gross pay. This is the taxable figure.
4. Deduct your costs: income tax, employee NIC, employee pension contribution.
5. Result = net take-home.
6. Holiday pay (12.07% accrual) should be shown separately — paid when you take leave or advanced, not silently folded into the rate.

Worked example: £30/hr assignment rate, 37.5-hour week

Illustrative weekly figures (2026/27 thresholds assumed; rounded):

The umbrella route costs roughly £60 a week here versus PAYE — the margin plus the structural effect of employer costs coming out of the rate. Over a year of full-time agency work, that is ~£3,000. Holiday pay accrues separately under both models.

Agency PAYE: the simpler route

Under agency PAYE you are the agency's employee. The agency quotes you a PAYE rate (lower than the assignment rate — this is normal and honest), deducts income tax and employee NI, and pays you. You get statutory employment rights with the agency (holiday pay, sick pay, pension auto-enrolment), one clean payslip, and no weekly margin. The agency funds its employer costs and profit from the difference between the assignment rate and your PAYE rate.

Side-by-side comparison

Umbrella's genuine advantage is continuity: one employer across many agencies, which helps with mortgage applications and employment history. For most nurses working with one or two agencies, PAYE wins.

How to check your umbrella payslip

Every week, verify these five lines:

1. Assignment rate — matches what the agency quoted.
2. Employer costs — employer NIC, levy, pension shown as deductions from the assignment rate.
3. Gross pay — assignment rate minus employer costs minus margin. Reconcile it yourself.
4. Your deductions — income tax, employee NIC at the right rates; tax code correct.
5. Holiday pay — shown separately as accrued/paid, not hidden inside the hourly figure.

If gross pay plus employer costs doesn't reconcile to the assignment rate, query it in writing before the next pay run.

Red flags and compliance

• Umbrellas quoting take-home percentages ("keep 90% of your pay") — non-compliant models often sit behind these.
• Holiday pay described as "included in your rate" with no separate accrual figure.
• Pressure to use the agency's "preferred" umbrella without a PAYE option offered.
• Offshore or mini-umbrella arrangements fragmenting your employment.
• Any scheme involving loans, annuities or "contractor" payments instead of salary — these are tax-avoidance red flags HMRC pursues.

Holiday pay mechanics in detail

Holiday pay is where umbrella arrangements most often confuse — and where non-compliance hides. The legal position: as a worker you accrue 5.6 weeks' statutory paid leave a year, calculated at 12.07% of hours worked for irregular-hours workers. Under a compliant umbrella:

• Holiday pay accrues separately and appears as its own line on your payslip — not folded into your "hourly rate".
• It's paid when you take leave, or advanced with your pay — either is lawful, but it must be identifiable as holiday pay.
• If an umbrella quotes an hourly rate "including holiday pay", ask for the underlying rate excluding holiday pay — the rolled-up figure flatters comparisons with PAYE.
• On leaving the umbrella, untaken accrued holiday must be paid out — check your final payslip for it.

Under agency PAYE the same 12.07% accrual applies, but it's typically simpler to track because there's no margin or employer-cost layer sitting above it.

Umbrella pensions are not the NHS pension

Umbrella employees are auto-enrolled into the umbrella's own defined-contribution pension (often NEST or similar) — not the NHS Pension Scheme. The employer's minimum contribution is 3% of qualifying earnings, versus the 23.7% that funds NHS scheme benefits, and there's no defined benefit, no 2× death-in-service lump sum at NHS levels, and no ill-health retirement terms. Some agency workers see "pension" on their umbrella payslip and assume they're covered equivalently — they aren't. If you do long-term agency work, consider voluntary contributions, but understand that no private arrangement at these contribution levels replicates the NHS scheme. This is the single biggest financial reason bank work beats agency for regular shifts.

Switching umbrella company

You're not locked in: you can change umbrella company, though timing matters. Finish the current pay cycle first so holiday accrual and final pay are clean; get a P45 from the old umbrella and give it to the new one (or complete a starter checklist) so your tax code stays correct; and confirm in writing how your accrued but untaken holiday pay will be paid — it's the commonest thing lost in a switch. And remember: no agency can make using their preferred umbrella a condition of the assignment. You have the right to choose your umbrella — including choosing agency PAYE instead.

Frequently asked questions

What is the difference between umbrella and PAYE for agency nurses?

With agency PAYE you are employed by the agency and paid after tax/NI. With an umbrella company you become the umbrella's employee: employer costs (employer NIC, margin, levy) come out of the assignment rate before your gross pay is calculated, then your tax and NI come off.

Is umbrella or PAYE better for NHS agency work?

PAYE through the agency is usually simpler and cheaper — no weekly umbrella margin (£15–£30) and full employment rights with the agency. Umbrella can suit those working for multiple agencies who want one employer and continuous employment.

Why is my umbrella take-home lower than the assignment rate suggests?

Because the assignment rate is not your wage: employer National Insurance (~15% above threshold), the apprenticeship levy (0.5%), the umbrella margin and employer pension costs all come out of it before your gross pay — then your own tax and NI are deducted.

What is the umbrella margin?

The umbrella company's weekly or monthly fee for employing you — typically £15–£30 a week. It is deducted from the assignment rate, and compliant umbrellas show it clearly on your payslip.

Do umbrella workers get holiday pay?

Yes — umbrella employees accrue statutory holiday pay (12.07% of hours), which should be shown separately on the payslip and either paid when you take leave or advanced. Check it isn't being silently rolled into your 'rate'.

How do I check my umbrella payslip is correct?

Check five lines: assignment rate, employer costs deducted, gross pay, your tax/NI, and holiday pay shown separately. Your gross pay plus employer costs should reconcile to the assignment rate — if they don't, query it.

Sources and independence

Source: GOV.UK — understanding off-payroll working (IR35) (employment-status context).

Source: GOV.UK — holiday entitlement rights (12.07% accrual basis).

This is an independent guide and is not affiliated with the NHS. Worked examples are illustrative, based on 2026/27 thresholds assumed unchanged; your figures depend on your tax code, umbrella and agency. This is general information, not financial or tax advice — see our disclaimer.