Greenwich Contracts Holiday Pay Policy
We’re often asked how holiday pay works when working via an umbrella company. Umbrella employees are as entitled to holiday pay as any other employee in the UK, it is their right to receive it – and the payment methodology should be clearly stated at the time of application.
There are a couple of different ways that an umbrella can provide holiday pay to their contractors (employees). We have followed legislation and guidelines closely to create the following procedures and policies, ensuring our contractors are always compensated accurately for their allocated holidays.
Holiday & Holiday Pay Policy Purpose
These policies set out employees’ entitlements to annual leave and the Company rules on taking annual leave. This policy ensures that all employees are aware of their responsibilities and company processes relating to taking and being paid for accrued leave. Holiday Pay is due to you for any period of accrued leave undertaken, at the end of the leave year if untaken or upon termination of your employment in accordance with the Working Time Regulations.
- The company’s leave year runs from 1st April to 31st March
- As an employee of our company you are entitled to 5.6 weeks for a complete leave year, up to a maximum of 28 days. (Where you become employed part way through the leave year, your entitlement will be calculated on a pro-rata basis.)
- For clarity, bank and public holidays are considered working days and you are expected to work on these days. However, you may take them as holiday or your current assignment may require you to take them as part of your annual leave entitlement.
- You cannot carry over any accrued holiday entitlement into the next leave year, except as provided for in the Working Time Regulations.
- Any unused holiday pay will be refunded to you either when you leave or at the end of the leave year, whichever comes first.
- If requested, an advance on account of sums due to you for annual leave can be made. You shall give us credit for such payments against your entitlement at the relevant time.
Annual leave must be authorised in accordance with our standard leave booking processes. You must:
- Notify the client of your intention of taking time off in line with their own holiday booking process, (this may require you to submit your request through a recruitment agency if one is involved with your assignment.)
- Notify your client a minimum of 2 weeks in advance of the first day of holiday wishing to be taken OR the appropriate time period as dictated by the client’s booking process.
- Notify us as your employer of your intention to take time off as a matter of professional courtesy. (Failure to notify us may result in a delay of a holiday payment being made.)
It is your responsibility to:
- Ensure that you undertake 5.6 weeks of leave (up to a maximum of 28 days) within a leave year in accordance with Working Time Regulations.
- Notify us if you believe you are being prevented from taking time off by a client (where this goes against any pre-agreed terms in the contract for service for your current assignment.)
- Notify us immediately if you believe your holiday pay is incorrect.
Under the Working Time Regulations, holiday pay must be shown as a separate entry on your payslip when you take annual leave instead of being included within your pay rate. The value of any holiday payments made to you can be located under the “Employee Payments” section of your payslip and is listed as “Holiday Pay”.
Due to the nature of our business as an umbrella company, we cannot pay holiday pay at every employee’s actual assignment rate, given the modest margin that we retain each week.
As an example of this, an employee with an assignment rate of £600 per day could be entitled to £16,800 per year in holiday pay. Our margin of less than £30 per week would cover less than 10% of this. As a result, holiday pay is calculated on your basic rate (as given in your contract of employment) and taken as a deduction from your weekly or monthly assignment rate to be paid when you take time off.
By basing holiday pay on your basic rate, we are ensuring that we are holding back as little as we possibly can, whilst still offering you a fully compliant service.
Holiday pay will be calculated in the same way as per the example which follows (all examples provided are based on National Living wage as of April 1st 2020):
For each day taken as holiday you are paid at your basic rate based on your contract of employment:
1 day holiday = 7.5 hours @ £8.72 = £65.40
The value of your holiday pay held back each week/month will be calculated as follows:
28 days per year x 7.5 hours per day @ £8.72 per hour / 46.4* weeks = £39.47 holiday pay
28 days per year x 7.5 hours per day @ £8.72 per hour / 10.79* months = £169.71 holiday pay
*the number of weeks/months per year presented is the amount of time worked per year which does NOT include the 5.6 week leave entitlement.
The example above is for illustrative purposes only and the value will differ depending on the value of the basic rate within your contract
So how does this work in relation to your Salary payments?
When an agency negotiates the assignment rate charged to the end-client, the rate should factor in the following deductions:
- Employers NI (or NIERS),
- Holiday Pay,
- Apprenticeship Levy and
- The employers Pension Contribution.
And still provide a basic salary rate equivalent to that of a permanent colleague at the end client doing the same role once those deductions have been taken. It is because of these deductions you may often hear an assignment rate called an ‘umbrella’, ‘charge out’ or ‘limited’ rate and you may also be told these rates include an ‘uplift’.
While as a contractor, you may expect to receive the rate quoted for an assignment, however the reality of the situation is that employment costs must be taken into consideration first.
The umbrella company will receive a remittance notification of payment from the agency or end-client, detailing the assignment rate and number of units (hours or days) worked.
When the Umbrella company receives the payment from the agency, the umbrella company retains a small margin or fee (which the contractor is made aware of before they agree to sign up) this is to cover administrative costs, insurances, internal salaries and usual expenditure for a business.
All employment costs are then deducted from the sum; Employers’ NI 13.8%, Apprenticeship Levy 0.5%, any pension contributions (if applicable) as well as a holiday pay.
Once all of these deductions have been made, the gross figure (or basic rate) is left and is treated as your earnings upon which employee tax and NI deductions are calculated.
All Tax, NI and pension contributions are reported to the HMRC through the Real Time Reporting system (RTI) to the HMRC and a payslip is issued to the contractor.
Most umbrella companies do not hide the fact that the Employer’s costs are included within the assignment rate offered by an agency. At Greenwich Contracts we make a conscious effort to let a contractor know about these employment costs during the initial enquiry/application stage, by providing an example payslip or illustration showing the full breakdown.
In addition to this, from 6th April 2020, the law now requires an agency to provide every contractor and their umbrella company with a copy of a Key Information Document (KID) which will detail all potential deductions that you can expect to see on your payslip – this is to ensure that everything is transparent and there are no unannounced surprises. (If you want to know more, please take the time to review our article on the KID document for more information). Our process is to always send a copy of this over to a contractor as well to ensure that you have the information you need.
If you are still unsure about how an umbrella company calculates your salary payment, just ask we are always happy to help!