Contractors that operate through a limited company or on a self-employed basis, unfortunately, don’t benefit from receiving holiday pay. This means that if they need to take time off, such as over the festive period, they will not earn income during this time.
However, the good news for umbrella company contractors is that they do benefit from holiday pay. This is considered a significant benefit to working through an umbrella company.
So, if you’re looking to take some well-deserved time off this Christmas period, you can rest assured that you will receive holiday pay whilst you do.
But how exactly does this work? In this guide, Umbrella Search outlines everything contractors need to know about holiday pay, including how it works and how much you receive, so you can plan ahead for the festivities.
Why do umbrella company contractors get holiday pay?
As we’ve mentioned, one of the main benefits to working through an umbrella company for contractors is that they will receive holiday pay.
This is due to the fact that you become an employee of the umbrella company you sign up to, meaning you are entitled to statutory rights. As well as holiday pay, you will also be entitled to sick pay and maternity leave or paternity leave.
This affords you well-deserved time off when you need it and is contrary to limited company contractors who, as self-employed workers, aren’t paid when they don’t work. You can find out more about the key differences between umbrella and limited company contractors here.
How much holiday pay are umbrella company contractors entitled to?
As with any other employee in the UK, statutory holiday entitlement is set at 5.6 weeks per year for full-time workers. This works out as 28 days of leave. If you are a part-time worker, the amount will be worked out pro rata.
This is great news for contractors as it means that they can take well-deserved breaks throughout the year. This acts as a huge benefit and gives you time to switch off and reset. This not only helps you protect your well-being, but it also means you can come back to work refreshed and ready to work hard on the contract at hand.
How is holiday pay calculated?
For umbrella company contractors, holiday pay is generally calculated as a percentage of your gross earnings. The 12.07% rule is a straightforward way to calculate holiday pay, ensuring you receive the statutory minimum.
So, let’s say you earn £1000 in a week, take that figure multiplied by 12.07 to get the amount you will receive in holiday pay.
How do umbrella company contractors receive holiday pay?
There are typically two different ways that contractors can receive their holiday pay.
The first is through the accrual method.
Here, the contractor’s holiday pay is accrued by the umbrella company and paid to the contractor when they take leave. So, let's say you decide to take a week of over Christmas, you will receive a week's worth of holiday pay during this time.
Alternatively, the rolled up method is where your holiday pay allowance is included in your regular pay each month, so you know you’re always up to date with what you’re owed.
How much holiday pay are umbrella company contractors entitled to?
As with any other employee in the UK, statutory holiday entitlement is set at 5.6 weeks per year for full-time workers. This works out as 28 days of leave. If you are a part-time worker, the amount will be worked out pro rata.
This is great news for contractors as it means that they can take well-deserved breaks throughout the year. This acts as a huge benefit and gives you time to switch off and reset. This not only helps you protect your well-being, but it also means you can come back to work refreshed and ready to work hard on the contract at hand.
How is holiday pay calculated?
For umbrella company contractors, holiday pay is generally calculated as a percentage of your gross earnings. The 12.07% rule is a straightforward way to calculate holiday pay, ensuring you receive the statutory minimum.
So, let’s say you earn £1000 in a week, take that figure multiplied by 12.07 to get the amount you will receive in holiday pay.
How do umbrella company contractors receive holiday pay?
There are typically two different ways that contractors can receive their holiday pay.
The first is through the accrual method.
Here, the contractor’s holiday pay is accrued by the umbrella company and paid to the contractor when they take leave. So, let's say you decide to take a week of over Christmas, you will receive a week's worth of holiday pay during this time.
Alternatively, the rolled up method is where your holiday pay allowance is included in your regular pay each month, so you know you’re always up to date with what you’re owed.
What if I don’t use all of my holiday pay?
If you are coming to the end of the year and don’t think you will use up all of your 28 days of holiday, you must understand what happens next.
Usually, in this instance, the umbrella company will pay out the remaining holiday pay entitlement to you as a lump sum, meaning you don’t loose any of your holiday pay.
Likewise, if you decide to leave the umbrella company you are using mid way through the year, the umbrella company will pay any holiday pay you are owed in your final pay-check.
What contractors should check with the umbrella company
As we’ve already touched on, there are certain aspects of holiday pay that can be treated differently from umbrella company to umbrella company. That’s why it’s always important to ask certain questions to the umbrella company so you know how holiday pay will work for you.
The first thing you should ask is whether they use the accrual or rolled up holiday method. Check which method they use, and whether you have a choice in this should you have a preference.
You will also need to understand how any unused holiday pay is treated and how this will be paid to you if you don’t use up all your leave.
Some contractors will also want additional benefits such as being able to buy more holiday leave, so it’s always worth asking the umbrella company if it’s possible to do so.
Additional benefits
As well as holiday pay, contractors will also receive sick pay and maternity/paternity leave.
So, if you can’t work due to illness, or because you’re expecting a baby, then you will receive statutory pay in these instances. Again, this is great news for contractors as it means they always have a security net when they need to take time off.
That’s why thousands of contractors across the country use an umbrella company. Not only do they take on tasks such as taxes, salaries, dealing with clients, invoicing, and expenses, they also grant you access to statutory benefits, so you can take well-earned time off when you need it.
Ready to find an umbrella company?
If you’d like to benefit from much needed time off over the Christmas holidays, working through an umbrella company will ensure that you’re still paid whilst you take your down time.
If you’re considering taking the next steps to using an umbrella company but aren’t quite sure where to start, Umbrella Search can help.
Our team of professionals will work hard to find an umbrella company that’s the perfect fit for you and your contracting needs. Whether that is the ability to buy more holiday leave, or perhaps you’re looking for same day payments, we’ll find a provider that’s the best match.
Simply get in touch with the Umbrella Search team today and see how we can help.
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