How is holiday pay calculated with an umbrella company?

One of the benefits of working via an umbrella company is that you receive holiday pay, which you can use if you have planned time off coming up or have booked a holiday. One of the questions we get asked most from contractors (particularly if they’ve never used an umbrella company before) is how holiday pay is calculated. Please continue reading to learn what holiday pay is and how it is calculated and paid when working via an umbrella company.

How is holiday pay calculated when you work through an umbrella company?

As part of the Working Time Regulations 1998, workers (including most zero-hours, agency, and part-time workers) have the right to at least 5.6 weeks/28 days of paid leave per year. When an umbrella company employs you, holiday pay is calculated at 12.07% of your taxable income.

Similarly to the Employer’s National Insurance and other employment costs, holiday pay is deducted from the assignment rate. The assignment rate is the amount paid by your end client or recruitment agency to your umbrella company, including your gross rate of pay and the uplift for the employment costs. The gross rate of pay is the total amount you earn before any tax deductions are made.

Therefore, holiday pay is reallocated from the assignment rate and either paid out to you each payday or accrued until you request it. Holiday pay must be accounted for and listed on your payslip.

What is rolled-up holiday pay?

Most contractors choose to have their holiday rolled up (also referred to as paid out). Rolled-up holiday pay gets added to your weekly/monthly payslip, and each payday is paid out alongside your normal salary. This means you are always up-to-date with your holiday entitlement.

What is accrued holiday pay?

You can also choose to accrue your holiday pay. This means instead of the holiday pay being paid to you each payday, it will be accrued, and you can have it paid in a lump sum later. For example, if you had an upcoming holiday or planned time off.

The importance of taking time off

Taking time off by taking a gap between assignments or negotiating time off with your end client or agency when working on your assignments is essential. By taking time off, you will get the necessary downtime to rest and recharge, protect your physical and mental health and spend time with family and friends.

Always use a compliant umbrella company to ensure your holiday pay is calculated and paid correctly

Unfortunately, in recent years, several unlawful umbrella companies have been caught not paying their workers what they are entitled to regarding holiday pay or have kept unclaimed holiday pay for themselves. You must only use compliant umbrella companies that are transparent, honest, and informative about how holiday pay is calculated and paid to you.

Request a tailored take-home calculation

If you are looking for a compliant umbrella company to process your payroll – look no further than Churchill Knight Umbrella. Our FCSA-accredited PAYE umbrella service is perfect for contractors and freelancers looking to get paid in the UK. Our expert Sales Consultants can provide a tailored take-home pay illustration and talk you through all the deductions that will be made to your pay when working via an umbrella company, including how holiday pay is calculated. For more information about our service or to begin the registration process, please call 01707 871622.