Holiday pay when you’re using an Umbrella Company

With Covid restrictions beginning to ease and travel returning to a new version of normal, you may be considering booking your summer holiday. But if you’re contracting under an Umbrella Company, do you get holiday pay?

In this blog we explore how holiday pay works, what you’re entitled to and how it’ll be paid.

How is your holiday pay calculated?

When you sign up to an Umbrella Company, you effectively create an overarching contract between yourself and the umbrella, so you therefore become an employee. As an employee you’re entitled to annual leave, which currently equates to 5.6 weeks (5.6 times the standard working week of 5 days) or 28 days per year. It’s up to your employer whether or not bank holidays are included in this 28 day limit. If you work less than 5 days a week or for six months of the year, your holiday entitlement will be calculated on a pro-rata basis.

Your holiday pay as an Umbrella Company employee is therefore based on these figures.

Example – by dividing 5.6 weeks by 46.4 weeks (the total number of working weeks left over once the 5.6 weeks have been taken out) you end up with a total of 0.1206896, which is rounded up to 12.07. It is this number as a percentage which is used to calculate your annual leave. If you’d like to know your annual leave you can use the government’s holiday pay calculator.

What to consider when taking on a new contract

As an Umbrella Company employee your holiday pay allocation is equated from the agreed contract rate with the end-hirer or recruitment agency. So effectively Umbrella Company employees do not receive the 12.07% uplift amount, as this amount is calculated from the assignment rate (eg the hourly or daily rate amount which you, the contractor has agreed to). So before agreeing to a contract, ensure you’ve considered your holiday pay, and how much you’re entitled to.

How is your holiday pay processed?

Typically there are two ways in which an Umbrella Company could process your holiday pay:

Option 1 – your holiday pay is processed for each payment frequency. You’ll see on your payslip that 12.07% of your pay will be allocated as ‘holiday pay’, and you’ll receive this extra % each and every time you’re paid. Most contractors prefer this method, as they know what to expect at the end of each week / month. Under the terms of the Working Time Regulations (WTR), holiday pay cannot be included in basic pay, so all Umbrella Companies must show each element of pay as separate entries on your payslips.

Option 2 – allows you to accrue holiday pay and then it’s paid back to you at a later date. If you don’t mind receiving less in your pay and prefer a lump sum, then option 2 could be the right choice for you, although it could mean waiting a lot longer to receive your money.

Here at SG Umbrella we only process your holiday pay each time you get paid, so there’s no waiting around. When choosing an Umbrella Company be sure to enquire about how holiday pay is paid, to make sure you’re comfortable with how you’ll receive your pay. If you decide to leave your Umbrella Company with any outstanding holiday payments, ensure they pay it to you.

How SG Umbrella can help you

Here at SG we know the importance of clear and reliable advice and support. We pay your holiday pay monthly, so you know exactly where your money is and can choose how you spend or save it, rather than us keeping hold of it for you. Our transparency translates throughout our services, and how our expert team support and guide you with your contractor pay. Take a look at our services today, or get in touch – we’d love to discuss our services with you.