How does holiday pay work through an umbrella company

If you are new to contracting or have never used an umbrella company, the concept of holiday pay may seem confusing. Please continue reading to discover how holiday pay works through an umbrella company and how it is paid to contractors.

What is holiday pay, and how is it calculated?

Workers (including most zero-hours, agency, and part-time workers) have the right to at least 5.6 weeks/28 days of paid leave each year under the Working Time Regulations 1998. When you register with an umbrella company, you become an employee of the company and benefit from holiday pay – which is calculated at 12.07% of your taxable income*.

Technically, holiday pay is not a deduction as it is either paid to you each time you are paid or accrued and paid to you in a lump sum at a later date. However, the Working Time Regulations state that holiday pay cannot be included in basic pay figures. Therefore, regardless of how you choose to have it paid to you, holiday pay will be shown as a separate entry on your payslip.

Where does holiday pay come from?

Holiday pay is deducted from the assignment rate along with the other employment costs. The assignment rate is the agreed amount the umbrella company will receive from your recruitment agency or end client and includes your gross rate of pay and the uplift to cover the amount for the employment costs. The gross rate of pay is the wages payable to you before tax deductions. You must only consider compliant umbrella companies that are transparent about how holiday pay works and clearly show holiday pay on your take-home pay calculation and payslip.

Churchill Knight Umbrella is always transparent about the deductions to your pay and will always show holiday pay on our umbrella company calculations.

How is holiday pay paid?

Registering with an umbrella company lets you choose how you would like your holiday pay paid to you. The payment methods you can choose from are accrued or paid in advance (also referred to as rolled-up). Most contractors will opt to have their holiday pay paid in advance and receive their holiday payments in advance based on the hours or days worked in the payment period. Advanced holiday payments are paid alongside your regular wage each week/month. If you opt for this holiday payment method, you will always be up-to-date with your holiday entitlement. If you decide to take holidays during your assignment, you will not be entitled to any additional holiday pay as all payments are up to date.

Alternatively, you can choose to have your holiday pay accrued. This is where your holiday pay entitlement will accumulate until you need it or request it. For example, if you had an upcoming holiday or planned time off, your assignment has finished, or it is nearing the end of the year, and you would like to request your holiday pay.

If you are an employee of Churchill Knight Umbrella and would like to request your accrued holiday pay or change how your holiday pay is paid to you, please get in touch with our Umbrella Customer Service Department.

Request a tailored take-home pay illustration

If you are interested in finding out what your take-home pay could be when working via an umbrella company, please call our expert Sales Consultants at 01707 871622. You can request a tailored take-home pay illustration, and our friendly team can answer any questions you may have about our umbrella service.

 

*12.07% represents the government standard holiday entitlement for a contractor working 52 weeks. However, due to the nature of contracting, we may deduct up to 25% of gross payment to allow for the provision of holiday pay.