One of the many advantages of working through an umbrella company for contractors is holiday pay. Umbrella company contractors are entitled to statutory holiday pay, meaning you don't have to pay out of pocket when you wish to take a well-earned break.
To help every contractor understand how umbrella company holiday pay works and what they are entitled to in 2023, Umbrella Search has put together this helpful guide.
Umbrella company holiday pay explained
When contractors opt to use the services of an umbrella company, they automatically become an employee of their chosen provider. As an employee, umbrella company contractors are entitled to statutory rights, including sick pay, maternity leave, paternity leave, and holiday pay, in line with other UK employees.
On the contrary, contractors who operate through their own limited company won't be entitled to benefits such as holiday pay. Instead, these contractors will not get paid when taking a break and will have to cover these costs out of their pockets.
How much holiday pay will I receive?
That's why umbrella company contractors receive holiday pay, so how much are you entitled to?
Like any other employee in the UK, by law, umbrella contractors are entitled to a minimum of 28 days or 5.6 weeks of paid holiday leave each year. The umbrella company you choose to work with will decide whether this includes bank holidays.
If you contract on a part-time basis, your holiday entitlement will be worked out on a pro-rata basis, equating to 22.4 days per year for those that work four days per week or 16.8 days a year for those that work three days per week.
We know that contracting can be unpredictable, and many contractors work varying hours on several contracts throughout the year. If this is the case, your holiday leave will be worked out by taking the average time you have worked over the 12 weeks before your holiday.
How umbrella company holiday pay is calculated
To calculate how much holiday pay you will receive, contractors can use a simple formula:
Multiply your gross taxable pay by 12.07%
The result will be how much pay you will receive on annual leave.
How contractors receive holiday pay
Now that contractors know how much holiday leave they are entitled to and how much they will be paid, you will need to see how this will be paid to you.
There are two different ways that umbrella company holiday pay can be paid.
The first option is through the fixed, advanced method.
Here, the contractor will receive their holiday pay entitlement each time the umbrella company pays them, whether monthly, fortnightly or weekly. As the contractor's holiday pay is added to their payslip, they are always up to date with what they are owed.
For this reason, this is usually the preferred method for holiday pay by contractors and is the most common way it is paid.
The alternative is the accrual method.
With the accrual method, the umbrella company will set aside the contractor's umbrella holiday pay and will only pay this to the contractor when they take holiday leave.
Whichever way your umbrella company holiday is paid, contractors will always be able to see how much they have received on their payslips. This gives you an accurate record of how much holiday pay you've received so you can ensure you're getting what you're owed.
Before choosing which umbrella company you'd like to work with, look into whether the umbrella company pays holiday pay through the fixed or accrual method to suit your preference.
Other statutory benefits
Now that you know how umbrella company holiday pay works, you will also need to know the range of other statutory benefits to which working through an umbrella company entitles you.
Umbrella company contractors will also receive sick pay if they are too ill to work.
Contractors will be entitled to £99.35 per week in statutory sick pay, which means you will still be paid if you can't work due to illness. Contractors can claim this amount for up to 28 weeks in any year.
Maternity and paternity leave
Umbrella company contractors can also claim maternity and paternity leave. Contractors claiming maternity leave can receive up to 39 weeks of paid leave. During this time, you will receive 90% of your average weekly pay for the first 6 weeks, following which you will receive either £155.66 or 90% of your average weekly wage, depending on which is lower for the following 33 weeks.
Those claiming paternity leave can take 1-2 weeks paid leave which is also set at either 90% of their weekly pay or £155.66, depending on which is lowest.
Let Umbrella Search help with the following steps
After leading our handy guide, contractors will be updated on how umbrella company holiday pay works, how much you will receive and how this will be paid, and the other benefits available to umbrella contractors.
Our team will work closely with you to know your contracting needs and requirements to find the perfect umbrella company. To find out how we can help, get in touch for a quote, and we will be back as soon as possible.