We’re often asked how holiday pay works when working via an umbrella company. Umbrella employees are as entitled to holiday pay as any other employee in the UK, it is their right to receive it – and the payment methodology should be clearly stated at the time of application.
There are a couple of different ways that an umbrella can provide holiday pay to their contractors (employees). We have followed legislation and guidelines closely to create the following procedures and policies, ensuring our contractors are always compensated accurately for their allocated holidays.
These policies set out employees’ entitlements to annual leave and the Company rules on taking annual leave. This policy ensures that all employees are aware of their responsibilities and company processes relating to taking and being paid for accrued leave. Holiday Pay is due to you for any period of accrued leave undertaken, at the end of the leave year if untaken or upon termination of your employment in accordance with the Working Time Regulations.
Annual leave must be authorised in accordance with our standard leave booking processes. You must:
It is your responsibility to:
Under the Working Time Regulations, holiday pay must be shown as a separate entry on your payslip when you take annual leave instead of being included within your pay rate. The value of any holiday payments made to you can be located under the “Employee Payments” section of your payslip and is listed as “Holiday Pay”.
Due to the nature of our business as an umbrella company, we cannot pay holiday pay at every employee’s actual assignment rate, given the modest margin that we retain each week.
As an example of this, an employee with an assignment rate of £600 per day could be entitled to £16,800 per year in holiday pay. Our margin of less than £30 per week would cover less than 10% of this. As a result, holiday pay is calculated on your basic rate (as given in your contract of employment) and taken as a deduction from your weekly or monthly assignment rate to be paid when you take time off.
By basing holiday pay on your basic rate, we are ensuring that we are holding back as little as we possibly can, whilst still offering you a fully compliant service.
Holiday pay will be calculated in the same way as per the example which follows (all examples provided are based on National Living wage as of April 1st 2020):
For each day taken as holiday you are paid at your basic rate based on your contract of employment:
1 day holiday = 7.5 hours @ £8.72 = £65.40
The value of your holiday pay held back each week/month will be calculated as follows:
28 days per year x 7.5 hours per day @ £8.72 per hour / 46.4* weeks = £39.47 holiday pay
28 days per year x 7.5 hours per day @ £8.72 per hour / 10.79* months = £169.71 holiday pay
*the number of weeks/months per year presented is the amount of time worked per year which does NOT include the 5.6 week leave entitlement.
The example above is for illustrative purposes only and the value will differ depending on the value of the basic rate within your contract.