When you register with an umbrella company, you are entitled to holiday pay, but it is often an area that causes a lot of confusion. Continue reading as we explain how holiday pay works through an umbrella company, including how it is calculated and paid to umbrella company employees.
How is it calculated?
Almost all workers are legally entitled to 5.6 weeks’ paid holiday a year (often referred to as statutory leave entitlement or annual leave). This includes:
- Agency workers
- Workers with irregular hours
- Workers on zero-hours contracts
Umbrella companies will therefore base the holiday pay their employees are entitled to on these figures. To make life easier, umbrella companies will often divide the 5.6 weeks by 46.4 weeks (the rest of the weeks in the year) to reach a total of 0.12068966. This is then rounded up to 12.07 and is the percentage used to calculate the annual leave due.
If you have more complicated working arrangements or would like to know how much holiday pay you are entitled to, why not try the government’s holiday pay calculator? The online tool can provide you with information about how much leave you are entitled to for an entire year, part of the year or if you have started or finished a job part way through the year.
How is it paid?
Most umbrella companies will process holiday pay in two ways, and when you register, you are usually given the option to choose which one you prefer.
The first option is to have it advanced. This means that your holiday pay is processed and paid out each time you are paid. If you opt for it to be advanced, you’ll notice on your payslip that 12.07% of your payment is listed as “holiday pay”. Please be aware that if you choose this option, you will not have any holiday pay accrued for you to take when you have time off.
The other option is to have it accrued. If you choose to accrue your holiday pay, 12.07% will be paid into a separate holiday pot for you to request to be paid as a lump sum later. This option is preferable for those who like receiving their holiday pay when they have planned time off, such as a gap between contracts, time off, or a holiday.
Always consider holiday pay when negotiating your contract rate
Holiday pay (along with other employment costs) is taken from the assignment rate, which is the rate of pay paid to the umbrella company by your recruitment agency or end client. The assignment rate is different from the rate you get paid by the umbrella company, often referred to as the contract rate or gross rate of pay. The umbrella company will use the money from the assignment rate to cover the employment costs such as employer national insurance, employer pension deductions, the apprenticeship levy and holiday pay. Understanding the difference between the contract and assignment rate is essential to ensure you have received a sufficient uplift to your rate to cover these costs.
For more information about annual leave and holiday pay for umbrella employees, please visit the FCSA’s website.
Try our free umbrella company calculator
If you’re looking for an accurate and honest umbrella company take home pay illustration, why not try out the umbrella company calculator. Enter your information, and you’ll receive an instant take home pay calculation. You can use it as many times as you like!
If you are looking for an umbrella company – look no further than our top 10 umbrella companies to start your search. Every umbrella company listed in our top 10 is either accredited by the FCSA or Professional Passport. This means each company has been carefully vetted to ensure their processes adhere to the highest compliance standards, and your pay will be processed compliantly.