PAYE Holiday pay vs Contractor No Holiday

[Befuddled88]

Hi there,
So I recently took a contracting role - which I've yet to be paid for and originally was agreed to be paid via incorporating a company (which I have done, but not invoiced yet).

I'm very new to contracting so this may be a very naive question.

Through the agency if I took the "temporary workers" contract, I would accrue holiday pay and be paid this. Through my incorporated company, I would lose out on this benefit.

How exactly is holiday pay worked out? Am I actually financially losing out? If I am, should I be actively asking for this to be somehow factored-in to my hourly rate?

I have no plans to take the allocation of holiday, so pretty happy to lose out on the actual "days off".

[Befuddled88]

Sorry, think this should be moved to somewhere more appropriate - Business / Contracts, perhaps?

Apologies.

[LisaContractorUmbrella]

If you are employed by the agency then they will be responsible for paying you; they will pay employer's national insurance on your salary and you will have deductions made for income tax and employee's national insurance. You will also have statutory entitlements for holiday, sick pay, maternity pay etc. The amount of holiday pay you may be entitled to will be dependent on your contract - your entitlement should be clearly defined.

If you incorporate, the agency no longer has an employer responsibilities and your tax position may change depending on your IR35 status. If you are inside IR35 (a disguised employee) you will be liable for employer's national insurance contributions and also for income tax and employee's national insurance. If you are outside IR35 you will be able to draw dividends from your company which will not attract national insurance contributions.

The upshot of all this is that, if your rate from the agency doesn't change regardless of whether or not you are paid directly by them or through your own company, you will definitely be worse off if you incorporate and are inside IR35 and you will also lose any statutory employee entitlements.

[Befuddled88]

If you are employed by the agency then they will be responsible for paying you; they will pay employer's national insurance on your salary and you will have deductions made for income tax and employee's national insurance. You will also have statutory entitlements for holiday, sick pay, maternity pay etc. The amount of holiday pay you may be entitled to will be dependent on your contract - your entitlement should be clearly defined.

If you incorporate, the agency no longer has an employer responsibilities and your tax position may change depending on your IR35 status. If you are inside IR35 (a disguised employee) you will be liable for employer's national insurance contributions and also for income tax and employee's national insurance. If you are outside IR35 you will be able to draw dividends from your company which will not attract national insurance contributions.

The upshot of all this is that, if your rate from the agency doesn't change regardless of whether or not you are paid directly by them or through your own company, you will definitely be worse off if you incorporate and are inside IR35 and you will also lose any statutory employee entitlements.

Thank you.

I was reading online and it appears that agencies take deductions from employees in order to pay the holiday? I was informed holiday "accrues" based on how much I work. How is this paid for? The entitlement is set out as statutory minimum as accrued with the amount of work I take.

Would it be pertinent to see if my hourly rate can take account of them not needing to pay me accrued holiday?

[LisaContractorUmbrella]

If holiday pay is being deducted from your earnings and then paid back to you when you take holiday or when you leave their employment it is not really a deduction - you will not ultimately lose that money

[ASB]

Thank you.

I was reading online and it appears that agencies take deductions from employees in order to pay the holiday? I was informed holiday "accrues" based on how much I work. How is this paid for? The entitlement is set out as statutory minimum as accrued with the amount of work I take.

Would it be pertinent to see if my hourly rate can take account of them not needing to pay me accrued holiday?

The money to accrue the required benefit comes from "your" money anyway. This will affect the rate that can be paid. A completely made up hypothetical illustration.

You get a contract through an agency which is nominally @ 50/hour.

On a "ltd basis" you simply bill the 50/hour. Your employer (i.e. your company) is entirely responsible for all deductions, er's NI as appropriate, holiday, sick, pension etc etc.

Now, you do it via an umbrella. And it so happen you work exactly 40 hours for 10 weeks. The umbrella has 20k to "play with". You would "accrue" 5 days holiday in this period, which strictly is not allowed to be "rolled up".

So the brolly basically has something in the order of 20k - 2k holiday - 2.5k (approx) Er's NI to pay you. So this would equate to an hourly PAY type rate of 15.5k / 400 = £38.75/hour paye (with the holiday pay factored in and paid in a lump at the end - or by days off with pay during the contract).

I'm sure Lisa can legitimately pick holes in the detail, but the illustrative point is that the only money in "the pot" is from what is billed as a result of your labours. The brolly cannot pay er's ni, holiday etc out of its modest fees.

There are also other issues, e.g. paying you between assignments. This can only come from the fees you have generated and are retained for this purpose.

[Befuddled88]

The money to accrue the required benefit comes from "your" money anyway. This will affect the rate that can be paid. A completely made up hypothetical illustration.

You get a contract through an agency which is nominally @ 50/hour.

On a "ltd basis" you simply bill the 50/hour. Your employer (i.e. your company) is entirely responsible for all deductions, er's NI as appropriate, holiday, sick, pension etc etc.

Now, you do it via an umbrella. And it so happen you work exactly 40 hours for 10 weeks. The umbrella has 20k to "play with". You would "accrue" 5 days holiday in this period, which strictly is not allowed to be "rolled up".

So the brolly basically has something in the order of 20k - 2k holiday - 2.5k (approx) Er's NI to pay you. So this would equate to an hourly PAY type rate of 15.5k / 400 = £38.75/hour paye (with the holiday pay factored in and paid in a lump at the end - or by days off with pay during the contract).

I'm sure Lisa can legitimately pick holes in the detail, but the illustrative point is that the only money in "the pot" is from what is billed as a result of your labours. The brolly cannot pay er's ni, holiday etc out of its modest fees.

Very useful, thanks for the illustration.

I was reading this: https://simplifybusiness.co.uk/servi...e-contractors/ - which seems to state there may sometimes be a difference between the "LTD rate" and the "PAYE rate" recruiters offer? Should I approach the agency to see if there's any difference?

[LisaContractorUmbrella]

Very useful, thanks for the illustration.

I was reading this: https://simplifybusiness.co.uk/servi...e-contractors/ - which seems to state there may sometimes be a difference between the "LTD rate" and the "PAYE rate" recruiters offer? Should I approach the agency to see if there's any difference?

Can't hurt to ask the question

[northernladuk]

It's a bit concerning when you say you haven't been paid and you haven't invoiced yet. Are you talking about not invoicing because the proper period hasn't passed yet or you are overdue invoicing? How long are we talking?

[Befuddled88]

It's a bit concerning when you say you haven't been paid and you haven't invoiced yet. Are you talking about not invoicing because the proper period hasn't passed yet or you are overdue invoicing? How long are we talking?

I've only been here 3 weeks, both the client and agent are open to allowing me some time to get my head around things..