Many people will tell you that working for an umbrella company is the same as working for any other firm. Like many simple statements, this one is true in general but perhaps not in detail. Some facets of umbrella employment are distinctly different from holding an ordinary long-term position.
Holiday pay is one area where being an umbrella employee is different. While your holiday entitlement with an umbrella company is supposed to be the same as any UK employee, the method used to pay it can be complicated. This is because of the irregular working periods most umbrella employees deal with.
Calculating Holiday Entitlement
All UK employees, umbrella employees included, are owed the 5.6 weeks of holiday mandated by the European Working Time regulations. That amounts to 28 days per year. With umbrella situations, it is more useful to consider holiday entitlement in terms of a percentage. This is simple math; dividing the 5.6 holiday weeks by the remaining portion of the year (46.4 weeks) produces a (rounded) percentage of 12.07.
Umbrella Employment Differences
While most full-time employees receive a 12.07% uplift to account for their holiday entitlement, umbrella workers’ holidays are incorporated into their agreed assignment rate. When you receive your holiday pay as an umbrella employee, it comes out of a reserve fund for annual paid leave. This fund accumulates along with your Total Gross Pay at a rate of 12.07&.
Your Total Gross Pay is not always readily available. Here’s how it’s calculated:
Start with your contracted rate. Subtract the umbrella company’s margin and the national insurance amounts paid by both employer and employee. Also subtract your apprenticeship levy, if any. What remains is your Total Gross Pay
How Is Holiday Pay Processed For Umbrella Employees?
Most umbrella employees in the UK get two options for receiving holiday pay.
The first is to let it accrue as a lump sum. This money is paid to you when you take your holiday. While the pay you receive in each period (weekly or monthly) is slightly lower, the lump sum paid out all at once balances the account and ensures you get all the pay to which you’re entitled. Many workers find this “savings” arrangement convenient for planning costly holidays in advance.
The second option is to have your holiday pay incorporated into each payment you receive from the umbrella company. This keeps your pay fully up to date, and there is no residual payment to have to seek out when you leave your umbrella provider. When you choose this option, you will find a ‘Holiday Pay’ line on each of your payslips.
Picking one of these options is usually part of registering with an umbrella company.
Protecting Your Holiday Pay
Sadly, news recently broke about less-ethical umbrella firms withholding holiday pay from their contractors. To avoid this kind of cheat, you want to make sure you are dealing with an ethical umbrella provider that is fully compliant with all of its payment obligations.