Accrued holiday pay – how umbrella companies should pay it to contractors

Accrued holiday pay – how umbrella companies should pay it to contractors

The integrity of umbrella companies has again been brought into question by third party stakeholders who are not impressed with the industry’s state. Most recently, it’s alleged an FCSA accredited umbrella company has been withholding accrued holiday pay from their employees and keeping it for themselves. We don’t know the case’s facts, and we don’t want to spread rumours or risk passing on misleading information. However, we want to explain how holiday pay works for contractors using an umbrella company to be confident you don’t fall victim to unethical practices.

What is the allegation against the FCSA accredited umbrella company?

An FCSA accredited umbrella company has been accused of unethically retaining holiday pay accrued by their employees. Umbrella companies need to show holiday pay on the payslips of their employees legally. However, it is reallocated to the contractor (employee) from their assignment rate. Therefore, if an umbrella company has decided to pocket accrued holiday pay and keep it for themselves – it’s outrageous, as this is the contractor’s money. Another example of one unethical umbrella damaging the entire industries reputation.

We’ve seen all kinds of accusations thrown towards umbrella companies as a whole. “Scandalous”. “Unethical”. “Fleecing contractors”. “Deliberately misleading”. The list goes on.

If the allegations are true and an FCSA accredited umbrella company has been unethically retaining accrued holiday pay – it’s a real shame. Not only has the umbrella in question behaved dishonourably, but it is also the innocent and hard-working contractors who are the ones who suffer. It’s completely unfair, and no umbrella employee should ever have their accrued holiday taken away from them.

It’s mightily frustrating when something like this is discovered. If the umbrella in question has behaved unethically, it’s an insult to their employees and a complete disregard for the industry’s integrity. In many cases, it takes just one unethical umbrella company to taint the entire industry, and morally motivated businesses will suffer as a consequence.

Plenty of online hostility has been thrown towards the direction of umbrella companies. Many comments suggest all umbrellas are a disgrace and they’re stealing from their employees. It’s imperative that we tackle this belief – it’s simply not true. 99% of umbrella companies care about their employees, and in exchange for a small margin, they make it their priority to provide an efficient, compliant and trustworthy payroll service.

This point is backed up by a recent report on umbrella companies published by The Low Incomes Tax Reform Group (LITRG). The head of the LITRG, Victoria Todd, said:

“There is a minority of umbrella companies whose bad practice and non-compliance sadly tarnishes the rest of the industry.”

Another point we’d like to add – a lot of third parties tend to jump on these types of stories and use them as an excuse for scaremongering. Going as far as to say they write posts and content for “clicks” rather than to help their intended audience may be a little unfair, but be sure to get all of the facts before reading something that brandishes all umbrella companies as “scandalous”.

How should holiday pay work through an umbrella company?

Umbrella companies exist to process payroll as your employer. When you register with one, you’ll become their employee and will be paid your salary (PAYE) at the agreed interval with your agency or end-client. The only income that compliant and ethical umbrella companies generate for themselves is the margin they retain. This margin is used to cover their business costs.

Holiday pay is simply a reallocation of your funds, and umbrella companies will not pay you an additional 12.07% of your assignment rate. Most umbrella companies will give you the option of having your holiday pay each time your paid – meaning 12.07% of your assignment rate will be reallocated as holiday pay on your payslip.

The other standard option is having holiday pay accrued – and then paid to you as a lump sum when you want it – or at the end of the year. This lump sum is your money – not the umbrella companies. If you have holiday pay accrued at the end of the year, you should contact your umbrella company and ask how you’ll receive this amount. Your umbrella company should state the amount of holiday pay you have accrued over time on your payslips.

Our advice to contractors

We’re not legal experts, nor do we know the individual working practices of individual umbrella companies in the UK. However, we are here to give advice.

Umbrella companies provide a payroll service, and compliant providers will offer their employees good value and dependable service. However, it takes one unethically motivated umbrella, and it damages the entire industry – understandably. It’s such a shame when this happens because contractors have every right to be taken aback and question whether to use an umbrella company. In reality, most umbrellas are wholly trustworthy and offer a necessary service and pleasant overall experience.

If you choose an umbrella and opt to have accrued holiday pay, it’s worth asking your provider how you go about claiming the amount you build up. Honestly – it should be as simple as ringing them and saying – “hello, please can you send me my accrued holiday pay?”.

We recommend you follow the guidelines below when selecting an umbrella company:

  • They’re FCSA accredited;
  • They have a respected reputation;
  • They have good online feedback;
  • They answer all the questions you have upon sign up and are happy to put information in writing – if necessary;
  • They offer you the chance to have holiday pay reallocated to you each payment frequency, or they ask if you’d like it retained (knowing the umbrella will pay it to you at a later date);
  • They do not have any tie in period, and you’re free to join and leave as you please;
  • They have a competitive margin.

Top 10 umbrella companies

Have you seen our top 10 umbrella companies? Some of them have fantastic offers, and they’re all accredited by the FCSA. If you’re looking for a new umbrella company – our top 10 is a great place to start.

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Click here to see our top 10 umbrella companies!

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