How does an umbrella company work?
An umbrella company is effectively the middle man between the contractor and their client; the umbrella employs a temporary worker on behalf of an employment agency and the agency will then provide the services of the worker to their clients.
As with any other employer, the umbrella company will provide a payslip with all tax liabilities worked out for you – it will include your contract pay (before and after any deductions), the number of hours you’ve worked and the amount of deductions.
For more information on how this works, read our Using an Umbrella Company – Who Pays Me? page.
How does umbrella company holiday pay work?
As mentioned previously, umbrella contractors are employed by their umbrella company – this means that they have similar benefits to permanent workers, such as holiday pay.
Umbrella company contractors are entitled to a minimum of 28 days of annual leave/holiday a year (including bank holidays). This may end up being more depending on the client, but should be clearly stated in your contract if this is the case.
Most providers will usually calculate holiday pay as 12.07% of your gross taxable income. If you only work for part of the year, then your allowance will be worked out on a pro-rate basis.
This should all be clearly presented on your payslip – take a look at our page Your Payslip Explained for an example of this.
How will I receive my holiday pay?
When you first register with your umbrella company, you should be given the option of how you want to receive your holiday pay.
Your two choices are:
- Being paid in advance – this will be paid alongside your weekly or monthly pay.
- Accruing your pay – if you request this option then your holiday pay will be safely kept within a ‘pot’ by your umbrella company for you to reclaim whenever you decide to take annual leave. This is handy for if you find yourself in between contracts and want to use your holiday pay for this period.
If you were to leave your umbrella company and had decided to accrue your holiday pay whilst working, then any holiday pay that was deducted but not taken must paid back to you.
Contractor Umbrella ensures that we pay back every penny of unpaid holiday pay that is outstanding either at the end of the tax year, or at the termination of your employment, whichever comes first.
Can I trust my umbrella company with my holiday pay?
It’s important to remember that you are entitled to holiday pay, and so that money – whether accrued or paid straight up, is all yours.
A compliant umbrella will never keep your holiday pay for themselves, and there should never be any odd rules that prevent you from easily accessing this type of pay.
If you choose to save up your holiday pay then you should be able to view your ‘pot’ and the amount in it – at Contractor Umbrella for example, via the portal, you will be able to see the figure accrued and reclaim this when you decide to take annual leave.
When you’re registering with an umbrella company, check the terms of your contract and ensure that your umbrella has a clear holiday pay structure.
For advice on how to choose a good umbrella company, read our Best Umbrella Company page.
We hope you found this page helpful. If you’d like to sign up or need any further information on working through an umbrella company, please call one our friendly experts on 01206 591 000 or email sophie.lewis@contractorumbrella.com.
