If you decide to contract via an umbrella company, you will be entitled to receive holiday pay (as an employee of the company). Here we look at what holiday pay is, and how it is calculated.
What does the law say?
The vast majority of 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 European Working Time Regulations.
You start accruing holiday from the moment you start a job – whether it’s full time (as is the case for contractors), part-time, and even if you’re on a zero-hours contract. You can still accrue holiday entitlement if you’re on sick, paternity or maternity leave.
Interestingly, bank holidays do not have to be given as paid leave – they can be included in a worker’s statutory leave entitlement.
Of course, 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 is holiday pay calculated?
To work out how much holiday pay an employee is entitled to, your umbrella company will multiply your gross taxable pay by 12.07%
This percentage is worked out as follows:
5.6 weeks ÷ 46.4 weeks = 0.12069 (which is rounded up to 12.07%)
You can try the Government’s holiday pay calculator here – useful if you have a non-traditional working pattern.
When will I receive holiday pay?
There are two ways your holiday pay is paid to umbrella company employees – the first is via an accrual method, the other is via a fixed, advanced payment.
With the accrual method, your provider will keep your holiday pay entitlement aside until you actually take time off, or you stop working via the umbrella company. The only problem with this method is that should you fail to make a claim during the holiday year, then you may lose any entitlement you have built-up over time.
Alternatively, you will receive holiday pay every time you are paid – every week or month – so that you are always up-to-date with any holiday entitlement you are owed. This ‘advanced payment’ method appears to be the most often used by contractor umbrella companies.
Make sure your umbrella company has a transparent holiday pay policy, so you know exactly how and when your statutory leave payments will be made.
Where can I see a record of my holiday pay?
All umbrella schemes are obliged to include your holiday pay as a separate entry on your payslip. You can see a typical payslip here.
Importantly, you should remember that holiday pay is your money – it is simply managed by your umbrella company and paid to you via one of the methods outlined in this article.