The only piece of holiday pay advice contractors need before registering with an umbrella company

The only piece of holiday pay advice contractors need before registering with an umbrella company

Umbrella companies are getting a bad name because a few have let down their employees regarding holiday pay. This article isn’t here to argue for or against umbrella companies. Instead, this short text will help you understand how holiday pay should work when you are paid through an umbrella company. This is important to move forward in the know and reduce the risk of unfortunate events such as the umbrella unethically retaining your holiday pay for itself.

Understand how holiday pay should be processed through an umbrella company to ensure you’re never out of pocket

When you negotiate your assignment rate of pay with your agency or end-client, you will need to consider holiday pay. Holiday pay is calculated at 12.07% of your rate of pay. Umbrella companies, as your employer, need to show on your payslips that you are being paid holiday pay. However, the umbrella itself will not give you an uplift of 12.07%, and you will not receive additional funds – which means you need to account for this in your pay rate. To put it simply – you need to ensure you allocate some of your income aside as your holiday allowance if you’re saving for a holiday or rainy day.

Most compliant umbrella companies will process your holiday pay every time you’re paid, and you’ll see the holiday pay allocation on your payslip. However, other umbrellas will offer you the opportunity to have holiday pay retained (accrued) and paid to you at a later date. This is sometimes preferred by workers who like the possibility of having a lump-sum payment in the future because it’s a helpful way of saving money. However, we must warn you of something…

Despite holding the prestigious FCSA accreditation, there have been very public accusations targeting an umbrella company concerning holiday pay. Apparently, an umbrella (we’re not sure how many, but it’s only a tiny percentage of the market) has been retaining unclaimed holiday pay for themselves – meaning the employee misses out. And, to make matters worse, this is technically legal (although shockingly unethical). To avoid such appalling treatment from your umbrella, we suggest you choose to have your holiday pay processed every time you’re paid, rather than opting to have it accrued.

It is worth noting that ethical umbrella companies that accrue holiday pay will send employees multiple reminders to claim it.

Make sure you know how umbrella companies work and how to identify a compliant payroll provider

Understanding holiday pay is crucial, but there are plenty of additional factors to remember when registering with an umbrella company are:

  • Carry out thorough due diligence because it’s imperative you join a compliant umbrella company.
  • Only consider using an umbrella company that is accredited by the FCSA or Professional Passport.
  • Understand the dangers of engaging with a tax avoidance scheme – because the implications could be life-changing.
  • Make sure the company has an established trading history.
  • Remember that all compliant umbrella companies will process Pay As You Earn (PAYE) – HMRC’s tax system.
  • No compliant umbrella company will promote enhanced pay retention.
  • Online reputations are important, so check reviews for the umbrella companies you’re considering using.
  • Find out how the umbrella will process your payroll and what you need to do to be paid on time.
  • The only income umbrella companies generate for themselves is the margin they deduct for processing your payroll. Therefore, you want to ensure you choose an umbrella that provides you with good value. Don’t always choose the cheapest because they may provide a substandard service.

Top 10 umbrella companies

Are you looking for a new umbrella company? Maybe you’re new to contracting or unhappy with your existing payroll provider. We’ve collated a list of our top 10 umbrella companies to make your life easier. Our top 10 are accredited by either the Freelancer and Contractor Services Association (FCSA) or Professional Passport – meaning you’ll be in safe hands. And some of them have special offers at the moment. Please check them out!

Click here to see our top 10 umbrella companies!

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