The FCSA has recently updated its Codes of Compliance in response to industry-wide frustration surrounding a few umbrella companies retaining their workers’ holiday pay. Such practice is providing a handful of umbrellas with significant boosts in profits, but the practice is unethical and has rightfully been heavily reported on. In this article, we look at holiday pay with umbrella companies and advise contractors and freelancers who don’t want to risk having their holiday pay unfairly retained by their umbrella companies. The article also summarises the recent changes to the FCSA’s Codes of Compliance and whether or not the updated policies are adequate to stop malpractice.
Some umbrella companies are significantly profiting by retaining the holiday pay of contractors and freelancers
Holiday pay belongs to the worker but a few umbrella companies are profiting by withholding their workers’ holiday pay and retaining it for themselves
Firstly, it’s worth noting that a large majority of umbrella companies fairly process the holiday pay of their employees – quickly and without complications. However, it’s been reported that recently, a few umbrella companies have been retaining the holiday pay of their workers and keeping it to boost the business’s profits. Temporary workers will negotiate holiday pay with their recruitment agency (or directly with the client) with the understanding that it belongs to them as part of their assignment rate (rightfully so).
Frustratingly, it does appear that there are contractual arrangements where umbrellas effectively have a “claim it, or it’s ours” policy. In such arrangements, any worker who forgets or isn’t aware they’re owed holiday pay loses it, and the umbrella is profiting considerably. The issues surrounding holiday pay and umbrella companies have been on the tip of the tongues of all stakeholders, and something needs to change.
The FCSA has recently updated its Codes of Compliance
The FCSA has recently updated its Codes of Compliance to address issues surrounding the retention of holiday pay by umbrella companies.
In an article on Contractor UK, an anonymous source suggested the FCSA were bullied into rolling out a more lenient update to their Codes of Compliance regarding holiday pay – instead of the original, planned revision.
Apparently, the original update to the FCSA’s Codes of Compliance was meant to say:
“Save for any holiday entitlement which is carried over…you must not retain any accrued holiday pay beyond the end of the relevant holiday year.”
However, after receiving threats of legal action from an accredited member, the FCSA took a more vague approach, and the update to the Codes of Compliance states:
“[You] confirm that you make reasonable effort to ensure that employees receive their full holiday entitlement each holiday year.”
Julie Kermode, a previous CEO at the FCSA, has shared her views on IWORK – a new body she founded to support temporary workers in the UK. She said:
“We cannot think of any reason why the new standard might be so unacceptable to an FCSA member that they would consider the expense of taking legal action, except that they wish to continue profiting by not paying holiday.
We sympathise with FCSA being bullied in this way, we know from our experience that the sector can be very litigious due to the sums of money involved. In an ideal world, any FCSA member(s) not wishing to adhere to an agreed new standard should simply resign.”
Reporting to Contractor UK, Chris Bloor, Compliance Manager at Champion Contractors Ltd, an FCSA accredited umbrella, criticised the updated Codes of Compliance. He said:
“[The reasonable effort wording by the FCSA is] just not good enough.”
Chris concluded by saying:
“It’s the employees’ money. Any attempts to obfuscate the holiday payment process should be considered as an attempt steal this hard-earned money.”
Chris Bryce, CEO at the FCSA, said he was “confident” the revised Codes of Compliance would help the sector identify and practice the best compliance standards. He said:
“We are confident our refreshed codes will continue to act as a standard bearer for best practice across the industry, providing clarity and certainty on what constitutes compliant operations for stakeholders across the sector.”
And interestingly, in response to the backlash the FCSA received in response to the article on Contractor UK, Chris Bryce released a statement on the FCSA’s website explaining the revised Codes of Compliance in more detail. He wrote:
“Initially we thought the solution to the ‘use it or lose it’ precedent was quite simple – the top-line assignment rate contains an element of money to cover holiday pay, therefore the worker should be entitled to receive that money even if they don’t take the holiday. In principle, this should be the way it works, and the FCSA wants it to be the way it works. But we quickly realised it wouldn’t be this clear cut, when our legal advisors said we might be running the risk of requiring members to act unlawfully.”
If you are a contractor, this is our advice regarding holiday pay with your umbrella company…
Most umbrella companies will offer you two options – having holiday pay accrued (to be paid later in a lump sum) or having it paid every time payroll is processed. If you’re concerned that your umbrella company might accrue your holiday pay and you face the risk of losing it once the so-called year-end deadline expires – ask for it to be paid to you every payment frequency, and double-check it’s on your payslip.
If you decide to have your holiday pay accrued – make it clear you expect numerous warnings from the umbrella if there is a deadline approaching, and get clarification in writing so you can revert to it later (if necessary). But remember, most umbrellas will help you get your holiday pay and will not even consider profiting by retaining it for themselves.
Speak to your chosen umbrella before registering with them.
Top 10 umbrella companies
If you are looking for an umbrella company you can trust, please visit our top 10 umbrella companies. They are all accredited by either the FCSA or Professional Passport, and some have special offers at the moment. If you’re interested in using an umbrella – request a take-home pay calculation and ask them about holiday pay.
