In our latest video, we explain how compliant umbrella companies should process the holiday pay of employees. We hope you find it helpful. Please visit the Umbrella Companies YouTube Channel for more short videos that answer the most frequently asked questions about umbrella companies.
Video transcript – How should umbrella companies process holiday pay?
If you get paid by an umbrella company, you will notice holiday pay listed on your payslip. Since 2019, all PAYE employees have been entitled to 5.6 weeks of paid holiday each year or 28 days, including bank holidays. Most umbrella companies will determine your holiday entitlement as 12.07% of your gross taxable income.
So, how is holiday pay calculated? The 5.6 weeks of statutory holiday entitlement is divided by the number of working weeks after 5.6 is deducted. This is 5.6 divided by 46.4, which equals 12.07%. If you only work for part of the year, your umbrella company will calculate your holiday entitlement on a pro-rata basis.
As an umbrella employee, you must understand that holiday pay is not a deduction but a reallocation of your money. Similarly to employment costs such as the employer’s national insurance and the apprenticeship levy, holiday pay is taken from the assignment rate your umbrella company receives from your recruitment agency or end client. Holiday pay is then reallocated, ready to be paid alongside your salary or paid into a holiday pot which you can have paid later. This is why it is listed as a separate element on your payslip.
You can choose to have your holiday pay paid to you in one of two ways. It doesn’t matter which option you choose; you will receive the same amount. The first option is to have your holiday pay accrued. If you decide to have it accrued, your umbrella company will put your money into your own holiday pot. Your holiday pay entitlement will be added to this pot each time you are paid. You can have your accrued holiday pay paid to you in a lump sum later.
The second option is to have your umbrella company holiday pay advanced. When you choose to have it advanced, your holiday pay entitlement will be paid alongside your weekly or monthly salary, and no outstanding holiday payments will be due.
Please remember, it is entirely your decision how your holiday pay is paid to you. A compliant umbrella company will never keep your holiday pay for themselves.
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