While limited company contractors, as with all company owners, are not entitled to any annual provision of holiday time, in contrast, due to being employed, contractors working through an umbrella company can still access these benefits.
In this article, Umbrella Supermarket examines:
Despite appearances externally, contractors working through umbrella companies are employees – in exactly the same way as the people who are employed by your client. What separates your employment from that of the people working around you in your client’s premises is that you are employed by your umbrella company.
Under current UK legislation, all employees are entitled to 28 days’ holiday a year – your employer is entitled to include bank holidays as part of what is known as your “statutory leave entitlement.” (source: UK Government)
You do not get 28 days’ leave automatically from the start date of your engagement with your umbrella company. You will likely work full-time for your umbrella company and you will accrue these holidays during the year. Any time taken off for maternity, paternity, and adoption leave or when you’re off sick does not affect the accrual of your available holiday days.
If you work only three days a week on average, your umbrella company must offer you statutory leave entitlement pro-rata’d to your actual working schedule. For example, if you work 2 days a week instead of 5, then you are entitled to two fifths of 28 days’ holiday (or 5.6 holiday days a year).
If you work for more than five days a week, this does not mean that you will receive additional statutory leave entitlement – this will still be at 28 days’ per annum.
Contractors working for an umbrella company are agency workers – defined by the TUC as a worker "engaged through, or by, an employment agency or bureau and supplied to a hiring employer on a temporary basis." The Agency Workers Regulations (AWR) will therefore probably apply to you.
AWR means that contractors must receive equal treatment as the end client’s own employees. After 12 weeks of continuous employment in the same role, you must enjoy exactly the same terms and conditions in your engagement as the end client’s own employees, including pay and any annual leave above the statutory leave entitlement. For example, if the staff around whom you work are all entitled to 38 days’ holiday a year, you will also be after you have worked for the client under the umbrella company’s direction for 12 weeks.
Under the AWR, your holiday pay should be determined by the following formula – your earnings over the last 12 weeks divided by the number of hours you’ve worked in the last 12 weeks. This will give you a base figure upon which to work out your actual holiday pay. If, during the last 12 weeks, you took a week or more off, simply include the last 12 weeks in which you did actually work to make the necessary calculation.
Most umbrella companies will offer you a couple of options on what you want to do with your statutory holiday pay. It’s important to remember that you are funding your own holiday entitlement as opposed to it being funded by the umbrella, as pointed out on Contract Eye.
Most umbrella companies like to keep holiday pay simple. Typically holiday pay is worked out as 12.07% of your hourly rate. This rate is arrived at by dividing the number of weeks that statutory leave entitlement takes up of the year (in the case, 5.6 weeks (or 28 days)) by the number of weeks remaining (46.4 weeks (or 232 days)).
How you receive that 12.07% is up to you, but by far the most common method is in your pay packet.
Receiving 12.07% of your pay in your payslip is called “rolled up holiday pay”. If you choose this option, then when you are taking time off from work, you won’t receive separate holiday payments into your bank account.
Alternatively umbrella companies may choose to withhold a certain percentage of your pay every week. This withheld amount is then paid in the standard way when a contractor is actually on holidays. Both methods should result in the contractor receiving the same pay throughout the year, however rolled up holiday pay is the more common choice as it means contractors can collect their holiday pay cash quicker.
Recently introduced, the Working Time Regulations now mean that your umbrella company must show your holiday pay separately on your payslip – umbrella companies, as with all other employers, are no longer permitted to include it in “basic pay” on your payslip.
Whichever umbrella company you choose, they have a duty of care to you to ensure that you get paid for the time covered by your statutory leave entitlement. That said, mistakes do happen and you should check the itemisation of your earnings on every payslip you receive from your umbrella company.
Under the Working Time Regulations (Section 13(9)), if you don’t take statutory holiday during the year (that is, you take less holiday than you were entitled to during the year), you lose that holiday pay unless you and your umbrella company have come to a separate agreement between you that you can carry forward unused holiday time from one year to the next.
In the vent your Umbrella Company has withheld money for your holidays, there is a possibility that you could lose that money altogether if you don’t claim it.
It is possible for contractors, as with every other type of employee, to take their case for unpaid holiday pay to an employment tribunal however this must be done within three months of the end of their employment contract.
There are hundreds of umbrella companies in the UK right now competing for your business but how do you find the one that’s the right fit for you? By comparing umbrella companies online with Umbrella Supermarket, you can compare on the treatment of holidays as well as a range of other important factors.
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Any contractor considering switching to an umbrella company will want to know how to find the best provider to work with.
Although you could spend your precious time and energy searching the web for the best umbrella company, there is an easier way – using an umbrella calculator.
In this guide, Umbrella Supermarket explains why every contractor should use an umbrella calculator in 2021.
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If you’ve made the decision to contract through an umbrella company in 2021, you will next need to find an umbrella company that’s right for you.
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In turn, this means that the contractor will be automatically enrolled onto the umbrella company’s workplace pension scheme.
To help contractors find out more about umbrella company pensions Umbrella Supermarket has put together this handy guide.
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To help makes things a little bit easier, Umbrella Supermarket has put together this guide on PAYE or umbrella, outlining the key differences between each, to help you make the best and most informed decision for you.
One of the many benefits to working through an umbrella company is that you will receive holiday pay as well as a range of other statutory benefits including sick pay, maternity and paternity pay.
To find out more about umbrella company holiday pay, and how to calculate how much you will be entitled to, Umbrella Supermarket has put together this handy guide.
Contractors must make several decisions throughout their contracting careers. One big decision contractors have to make is how they will operate.
One way that contractors can work is through an umbrella company.
Umbrella companies have become an increasingly popular way to contract in the past few years, offering many benefits to the contractor. But, how do you know whether this option is right for you?
To help every contractor make the right decision for them, in this guide, Umbrella Supermarket explains when not to use an umbrella company.
There are tons of benefits to using an umbrella company, which is why they have become such a popular option for contractors in recent years.
After all, an umbrella company takes away the stress and hassle of operating through a limited company whilst offering contractors a range of advantages, such as statutory rights, paying them a salary, deducting correct tax levels and National Insurance, and taking care of tasks like expense processing and invoicing.
However, as more and more contractors opt to use the services of an umbrella company, more providers have started to claim that they are HMRC approved.
To bust the myths around HMRC approved umbrella companies and get straight to the facts, in today's guide Umbrella Supermarket look at whether HMRC approved umbrella companies really exist, so you know exactly where you stand.
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