A Comprehensive Guide to Umbrella Holiday Pay
As a contractor who has chosen to use an umbrella company, you may wonder how holiday pay works. Normally, as a contractor, this would not be a benefit available to you and is one of the advantages of going down the route of using an umbrella company. This guide will help navigate the intricacies of umbrella holiday pay, ensuring you can enjoy well-deserved breaks without financial worry.
Understanding your entitlement to holiday pay is vital. Unlike limited company contractors, umbrella company contractors are considered employees and are therefore entitled to statutory benefits, including holiday pay.
In essence, the main benefits of holiday pay as a contractor using an umbrella company are:
- Eligibility for Holiday Pay: As an umbrella company contractor, you are entitled to a minimum of 28 days of holiday pay per year.
- Calculation of Holiday Pay: Holiday pay is calculated as 12.07% of your gross taxable pay.
- Payment Methods: Holiday pay can be received either through the accrual method or the advanced payment method, with the latter being more common.
- Additional Benefits: Contractors are also entitled to statutory sick pay and maternity or paternity pay.
- Advantages of Umbrella Companies: These companies simplify the contracting process by handling administration, finances, taxes, and providing statutory benefits.
Read on as we delve into detail to help you navigate the ins and outs of holiday pay as an umbrella company contractor.
What is Holiday Pay?
Holiday pay is a statutory benefit granted to employees, including those working through umbrella companies. As an umbrella company contractor, you are legally entitled to a minimum of 28 days, or 5.6 weeks, of holiday pay each year. This entitlement is calculated based on the number of days you work per week. For instance, if you work four days a week, you are entitled to 22.4 days of holiday pay; if you work three days a week, you are entitled to 16.8 days.
Calculating Holiday Pay
To determine your holiday pay, you need to calculate 12.07% of your gross taxable pay. This percentage is derived from the statutory requirement of 5.6 weeks of holiday per year, calculated as a proportion of the total working year (52 weeks). For those with varying working hours, the calculation is based on the average pay over the 12 weeks preceding the holiday.
Methods of Receiving Holiday Pay
There are two main methods by which umbrella company contractors can receive their holiday pay:
- Accrual Method: In this method, your holiday pay is set aside by the umbrella company and paid out when you take your holiday. This approach ensures you have a lump sum to cover your time off.
- Advanced Payment Method: With this method, holiday pay is included in your regular payments. Every time you are paid by the umbrella company, a portion of your pay represents your holiday entitlement. This method is more common and ensures you are continually up-to-date with your holiday pay.
Your payslip from the umbrella company will detail how much holiday pay you have accrued or been paid, providing transparency and easy access to your holiday pay records.
Additional Statutory Benefits
Apart from holiday pay, umbrella company contractors are entitled to other statutory benefits, including:
- Sick Pay: If you fall ill and cannot work, you are entitled to statutory sick pay of £95.85 per week, which can be claimed for up to 28 weeks per year. To qualify, you must be an employee of the umbrella company, earn at least £120 per week before deductions, have been ill for at least four consecutive days, and not already be receiving other statutory benefits.
- Maternity or Paternity Pay: Contractors are entitled to maternity pay, receiving 90% of their average weekly pay for the first six weeks, followed by a lower rate of 90% of their average weekly pay or £151.97 for the next 33 weeks. Paternity pay entitles contractors to one to two weeks of paid leave, calculated similarly to maternity pay.
Making the Most of Umbrella Companies
Joining an umbrella company offers several advantages, including simplified administration, financial management, and tax handling, along with the statutory benefits mentioned above.
If you’re contemplating using an umbrella company for your contracting business, Umbrella Broker is the ideal place to search for the one most suited to your business needs.
