Guide to Umbrella Company Holiday Pay

One aspect of working through an umbrella company is that you’ll receive holiday pay, along with other employment benefits, such as sick pay and paid maternity and paternity leave.

But given that umbrella workers, albeit employees, aren’t permanent staff, many have questions about holiday pay. From how it works to the amount you’ll receive, we’ve explained everything umbrella workers need to know about this statutory right...

What is holiday pay?

Holiday pay is paid by employers to employees during holidays, for when an employee takes a holiday on a working day.

Do umbrella companies pay holiday pay?

Yes, we do. Umbrella workers are legally registered as employees and hold employment contracts. As a result, umbrella companies are legally obliged to offer statutory holiday pay under the Working Time Regulations 1998. Holiday pay is included at the rate agreed upon by the employee and their recruitment agency.

How does holiday pay work for umbrella employees?

Here at Parasol, it’s simple. Your holiday pay will be paid to you in advance of your taking leave. We do not withhold any elements of your net pay. Each time you are paid, the amount of holiday pay is highlighted on your payslip.

Locating holiday pay on payslips

Along with Employers’ National Insurance, Employers’ Pension Contributions, the Apprenticeship Levy and the umbrella company margin, holiday pay will also be detailed clearly on your payslip.

How much holiday pay do umbrella workers receive?

Umbrella employees are entitled to 5.6 weeks’ paid holiday a year, which works out at 28 days.

How is holiday pay calculated?

So, how much is holiday pay? Well, it’s based on how much you earn. We explain this in more detail in our Holiday Pay Reference Period Guide, but to give you an indication of the maths involved, your holiday pay rate is determined by multiplying your gross income (before tax) by 12.07%.

This percentage is arrived at by dividing 5.6 (weeks of holiday pay entitlement) by 46.4 (weeks remaining of the year), which comes to 0.12069. This is rounded up to 12.07%. While this is the general rule of thumb, an umbrella worker’s holiday pay rate can vary depending on the amount of holiday granted to permanent employees by the end client.

Is holiday pay taxed?

Yes. Just like bonuses and overtime, holiday pay is taxable income, which means it is subject to Income Tax and National Insurance Contributions (NICs). When you give us notice that you’re planning on using some (or all) of your holiday entitlement, we work out what your Income Tax and NICs will be – just like we do for your gross pay – and make the appropriate tax deductions. At Parasol, we pay holiday pay before you take leave, which affects how we calculate your deductions.

About Parasol

Since 2000, Parasol has supported contractors with compliant and trusted umbrella services. For more information regarding holiday pay and to speak with one of our friendly experts, please get in touch.