Statutory payments for contractors explained

Complete guide to statutory payments for contractors

What are the benefits of an Umbrella Company?

First, let’s start by looking at the benefits of contracting through an umbrella company.

In exchange for a fee, every umbrella company offers the contractor a range of services and benefits.

This includes employing the contractor and therefore paying them a salary and taking care of their tax and National Insurance obligations. This means that umbrella contractors won’t encounter any tricky and time-consuming tax calculations at the end of the financial year.

An umbrella company also covers contractors under Umbrella Companies Professional Liability and Professional Indemnity Insurance, meaning their compulsory insurance requirements are taken care of. Many umbrella companies will also offer additional types of insurance cover should this be required.

An umbrella company also takes care of the business side of contracting. For example, they will invoice the client on behalf of the contractor and chase any late payments as necessary. The umbrella company will take care of paperwork and admin, as well as other tasks such as processing timesheets and expenses.

Finally, the umbrella company offers the contractor a range of statutory rights.

This is seen as a big advantage of operating through an umbrella company. So, what are umbrella contractors entitled to?

Umbrella Company sick pay

Firstly, every umbrella contractor is entitled to umbrella sick pay, just like any other employee.

Here in the UK, most employees are entitled to statutory sick pay if they become too ill to work. This is paid by the employer for up to 28 weeks.

To qualify for statutory sick pay you must meet the following criteria:

  • You must be classed as an employee
  • You must earn an average of £120 per week before tax and National Insurance. This is worked out over an 8-week period. If you have only just recently started the job you can still qualify for sick leave.
  • As umbrella contractors are employees of their chosen provider they are automatically entitled to statutory sick pay.

    So, should the contractor fall ill and meets the criteria outlined above, they will benefit from statutory sick pay.

    This is unlike limited company contractors who are self-employed and therefore must pay out of their own pockets if they take time off work due to illness.

    Statutory sick pay is currently set at £95.85 per week.

    An employee is eligible for umbrella sick pay if they have been ill for 4 consecutive days, including over the weekend. However, they will only be paid for the days they would have been in work. These are otherwise known as qualifying days.

    You must notify the umbrella company of your illness within 7 days. If you are ill for longer than this time, you will need a note from your doctor or GP.

There are some instances when you will not be eligible for umbrella sick pay, including:

    • If you are already receiving statutory maternity or paternity pay
    • You have already received the maximum of 28 weeks’ worth of sick pay

Umbrella Company holiday pay

As well as umbrella sick pay, umbrella contractors are also entitled to holiday pay.

Under UK law all employers, including umbrella contractors, that work full-time are entitled to a minimum of 5.6 weeks’ paid holiday per year.

If you work part-time, the amount of paid holiday leave you are entitled to will be worked out pro-rata.

The amount of holiday pay you receive is in line with your basic rate of pay. For contractors, this is what they are paid by the umbrella company, not what they charge the client.

Again, this is often seen as a big benefit of contracting through an umbrella company, meaning that should you wish to take some well-earned time off, you will still be paid.

This is in contrast to limited company contractors who will not only miss out on income when going on holiday, they also won’t receive holiday pay.

Umbrella maternity/paternity leave

Another statutory benefit that umbrella contractors qualify for is maternity or paternity leave.

Umbrella contractors going on maternity leave will receive 90% of their average weekly pay for the first 6 weeks, and 90% of their average weekly pay or £151.20 per week (depending on which figure is lowest) for the following 33 weeks.

Umbrella contractors going on paternity leave can take 1-2 weeks’ paid leave which is also set at 90% of your weekly pay or £151.20 depending on which figure is lowest.

This offers contractors a great level of security and stability and is another reason many choose this route over going it alone as a self-employed contractor.

Workplace pension

Finally, umbrella contractors are entitled to a workplace pension.

Any employer must make pension contributions for employees who are:

  • Aged between 22 and State Pension age
  • Earn at least £10,000 per year
  • Work in the UK

Now you know the benefits of an umbrella company, find the best provider with our help

Now you know the range of statutory benefits you can receive under an umbrella company, the next step is to find the best umbrella company for you.

Thankfully, Umbrella Supermarket’s handy contractor calculator can help. Simply enter your details and contractor preferences and we will show you a list of the best-suited umbrella companies for your needs.

If you’re ready to find your perfect umbrella company, simply try it out for yourself today.

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