The summer holiday season is in full swing, and if you’ve got time off lined up you may like to know how holiday pay works through an umbrella company.
Contractors and agency workers often get less opportunities to take much-needed time off, so when the time comes to take annual leave it’s important to plan finances accordingly to ensure you can still receive income.
Contractors who work through limited companies do not get the same holiday allowance as permanent employees and must set aside their earnings to cover time off.
However umbrella company users (or ‘umbrella employees’) are given the same statutory holiday entitlement as a permanent employee. This means you are legally able to take 5.6 weeks’ paid holiday per year, which may or may not include bank holidays. You should check your contract with your agency for full details.
Holiday pay for umbrella company employees
Even if you work on a contract basis through an agency, you are entitled to get paid for the annual leave you take when you use an umbrella company.
How your holiday pay calculated on your payslip is based on holiday entitlement and the weeks worked in a year. Since your holiday entitlement is 5.6 weeks per year as mentioned above, the number of working weeks per year will be 46.4 (regardless of contract length).
Your holiday pay is worked out by taking a percentage of your earnings and either paying it out to you alongside your regular pay or setting it aside for the future.
Here’s how holiday pay is calculated through an umbrella company:
5.6 weeks of holiday allowance ÷ 46.4 working weeks = 12.07% of your gross taxable pay set aside for holiday
If your taxable pay each week is £450 for example, the holiday pay accrued each week would be £54.32 and would show up on your payslip as such (12.07% x 450).
How do I receive my holiday pay?
Most umbrella companies will include your holiday pay alongside your wages each time you get paid. This will be shown as a separate entry on your payslip. In this case if you wish to have income or savings for annual leave you could set this amount aside for the future.
The alternative is for your holiday pay to be accrued – which involves the umbrella company calculating your holiday pay out of your wages and setting it aside for you. This option would require you to request your umbrella company to pay out your holiday pay when you require it. The accrual method is used less frequently because it puts the responsibility on you as the contractor to remember to ask for holiday pay.
Churchill Knight Umbrella will support you on your contracting journey
Churchill Knight Umbrella is a professional umbrella company providing payroll services for contractors and agency workers in the public and private sectors. We take care of everything from set up and agency invoicing to deducting tax and National Insurance and getting you paid.
We are always transparent and our experts will inform you exactly how an umbrella company works, including holiday pay and entitlements.