Understanding how holiday pay works with Umbrella.co.uk

Holiday pay is time off you can take throughout the year that you are entitled to as a contractor through Umbrella.co.uk. As a contractor, you are entitled to 28 days annual leave (including bank holidays).

You can use this link to understand more about holiday pay: Holiday entitlement: Entitlement – GOV.UK

A large percentage of our contactors get their holiday pay included in their wages. This means that they get paid their holiday entitlement each week up front. If they were to take any time off work, it would be unpaid. If you choose this option, you will see on your payslip on the ‘Reconciliation page’ that this is added back into wages.

There is an option to accrue your holiday pay if that is what you wish to do. If you accrue your holiday, the amount of holiday pay that would have been paid to you in your wages would be deducted from your net pay and put into a holiday pot, which will be available for you to withdraw when you taken time off work.

This way you would not go a week without pay!

If you were to be paid directly by the agency or be a full-time employee of a business, you would receive a pay rate which is generally known as the PAYE rate. For example, the agreed PAYE rate is £20 per hour. This would not include the holiday pay.

When you go through an umbrella company, the holiday pay that is due to you is included in your rate of pay that is given by the agency.

The calculation of the amount of holiday pay would be 12.07% of the £20 PAYE rate. That would be: 20 X 12.07% = £2.41.

The assignment rate for working through an umbrella company would then be £22.41 per hour (rate of pay + holiday pay).

There are also the elements for Employer’s NI (which is calculated at 13.8%), Apprentice Levy (which is calculated at 0.5%) and Employer’s pension contribution (which is calculated at 3%) added to the PAYE rate. This would then make the assignment rate £25.87.

Please bear in mind all holiday pay is subject to standard company and personal deductions (tax, NI, pension, and apprenticeship levy).

In order to book time off, you need to do this through your agency/ end client to make them aware that you will not be attending work. Although Umbrella is technically your employer, we are unable to authorise your time off.

If you accrue your holiday pay, you need to either call us or email us the week you would like money withdrawing from your pot and tell us how much you would like to withdraw, and we can do that for you. Please contact us on 01625 546 610 or email us at customer.services@umbrella.co.uk

If you withdraw money on Monday, Tuesday, or Friday you will get your payment same day. If you ask to withdraw it Wednesday and Thursday, you will get your payment on Friday as we do not run a payroll on these days.

Please be aware that holiday pay is subject to tax and NI therefore the amount will be slightly lower than the amount you ask to withdraw. Importantly, if you are claiming holiday pay during the same week we are paying wages, your tax-free allowance can only apply to one of these payments (whichever is processed first).

Please find more information about tax free allowance at: Income Tax rates and allowances for current and previous tax years – GOV.UK

When you work through an Umbrella company you receive an assignment rate.  This is usually higher than the pay rate you would be offered if you were paid directly by your agency because it contains elements for company costs and holiday pay.

If you got paid directly via your agency, your rate of pay would not be inclusive of the company costs (employers NI, pension, holiday pay and apprenticeship levy) as they would make these payments themselves. As you get paid through an Umbrella company your agency has to uplift your rate of pay to cover these company costs.

If you’d like to talk to us about any of the information in this article, our team are on hand to help. You can call us on 01625 546 610, email us at customer.services@umbrella.co.uk or use the live chat function on our website.