You are entitled to receive holiday pay as an umbrella company contractor. Here we look at what holiday pay is, and how it is calculated.
What does the law say?
Most workers are entitled to ‘statutory leave entitlement’ or ‘annual leave’ equal to 5.6 weeks per year.
This is equivalent to 28 paid holiday days per year and is codified in the Working Time Regulations.
You accrue holiday from the moment you start a job. This applies whether it’s full-time (as is the case for contractors), part-time, and even if you’re on a zero-hours contract.
You still accrue holiday entitlement if you’re on sick, paternity or maternity leave.
Interestingly, employers do not have to give bank holidays as paid leave. Instead, employers can include bank holidays in a worker’s statutory leave entitlement.
Although unlikely in the case of the contracting industry, your employer may decide to provide you with more than 28 days’ leave per year.
How do you calculate holiday pay?
To work out how much holiday pay employees are entitled to, umbrella companies multiply the employee’s gross taxable pay by 12.07%.
Umbrella companies use this equation in the calculation:
5.6 weeks ÷ 46.4 weeks = 0.12069 (rounded up to 12.07%)
Try the Government’s holiday pay calculator here – it is a useful tool if you have a non-traditional working pattern.
When do I receive holiday pay?
Umbrella companies pay employees in two ways – the first is via an accrual method, and the other is via a fixed, advanced payment.
Funds included in your contract assignment rate are used to fund your holiday pay.
This is the sum of money your client or recruiter transfers to your umbrella. The assignment rate also contains your employment costs (such as Employers’ NI).
Most contractor umbrella companies use the ‘advanced’ or ‘rolled up’ methods.
Accrual payment method
With the accrual method, your provider keeps your holiday pay entitlement aside until you take time off, or you stop working via the umbrella company.
The only problem with this method is that if you don’t claim during the holiday year, then you may lose any entitlement you have built up over time.
Unfortunately, some umbrella companies take advantage of this. They may pocket any holiday leave entitlement which remains unclaimed by contractors at year-end.
For this reason, always be aware of how much accrued holiday you have at any one and do not rely on your umbrella company to remind you.
Advanced (‘rolled up’) payment method
Alternatively, your umbrella company pays you holiday pay every time they pay you – every week or month. This means you always stay up-to-date with any holiday entitlement you have earned.
Your umbrella company pays holiday pay in advance, not when you actually take leave.
Make sure your umbrella company has a transparent holiday pay policy, so you know exactly how and when they will make your statutory leave payments.
Read more about changes to the use of rolled-up holiday pay starting in January 2024. Interestingly, the government has considered the concept of ‘rolled up’ pay ‘unlawful’ for years, despite its widespread use.
In 2024, this pay method will become officially approved.
Where can I see a record of my holiday pay?
All umbrella companies must include your holiday pay as a separate entry on your payslip. Your employment contract should clearly explain how you receive your holiday pay.
You can see a typical payslip here.
Holiday pay is your money – your umbrella company simply manages it. So make sure you receive your full entitlement!
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