FCSA waters down umbrella company code, settling for ‘reasonable effort’ on contractor holiday pay

The FCSA rubbed out words proposed for its new compliance code that would have prohibited umbrella companies from keeping unused contractor holiday pay, because a member made legal threats.

With effect from Saturday July 1st 2022, the FCSA was going to add a new clause into its code to put beyond doubt for member firms that keeping unused holiday pay for themselves was forbidden.

In fact, ContractorUK understands that section A10 (d) was to state: “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.”

'Serious issue'

But a Freelancer & Contractor Services Association (FCSA) member firm strongly objected, ‘clearly because they had a serious issue’ with contractor holiday pay being put off-limits.

Also according to a source, those objections by the FCSA member firm came with threats of legal action against the FCSA.

Potentially not keen on a possibly long and expensive court case with one of its own members, the FCSA snuffed out the proposed wording (“must not retain”) before it saw the light of day.

'Make reasonable effort'

Instead, A10 (d) of the FCSA’s code of compliance for umbrella companies, now states:

“[You] confirm that you make reasonable effort to ensure that employees receive their full holiday entitlement each holiday year.”

Although a bit taken aback, the source is alert to the key difference: “The previous version suggests contractor holiday pay ‘must’ be carried over, and not forfeited.

“But the latest version – now in force and effective since Saturday -- re-introduces the possibility that contractors’ holiday pay may be lost. So it’s up to the umbrellas.”

Clearly against the rewrite, the source said: “Here’s the point; we’re talking about money that the worker generated, and that the umbrella expressly retained as provision for holiday pay.”

'Just not good enough'

The source isn’t alone in criticisng the new FCSA code for umbrella companies.

“We don't promise to [make just a] ‘reasonable effort’ to make sure our employees receive holiday pay,” says Champion Contractors Ltd, awkwardly for FCSA, an FCSA member firm.

Outlining its own stance on contractor holiday pay, Champion’s compliance manager Chris Bloor said the FCSA’s new ‘reasonable effort’ test was, “just not good enough.”

“It is the employees’ money,” he emphasised, before alleging: “Any attempts to obfuscate the holiday payment process should be considered as an attempt steal this hard-earned money.”

'The umbrella should get to keep it?'

In an online back and forth with Paul Chamberlain, head of employment law at FCSA legal partners JMW Solicitors, Mr Bloor was asked by the lawyer:

“If the true aim is to protect the health and safety of the workers, why is it wrong to say to them -- ‘you have an annual paid leave entitlement; we want you to take it for your health and safety and to incentivise you to do that, if you don’t take the leave, then you don’t get the pay?’”

Speaking to ContractorUK, another legal expert answered Mr Chamberlain’s question: “So; the umbrella company should get to keep it?”

The expert says much of what FCSA has said since founder-member JSA faced allegations of withholding holiday pay makes its new ‘reasonable effort’ test look like a U-turn.


“This hasty rewrite of the FCSA’s code is the FCSA’s volte-face,” began the expert.

“Since the accusations against JSA, in public and private, FCSA has said ‘use it or lose it’ on contractor holiday pay wasn’t an acceptable practice by any of its members.  

“FCSA’s CEO [Chris Bryce] said ‘use it or lose it’ is unacceptable’ quite a few times. To now say brollies can make just a ‘reasonable effort’ so it’s not lost? Well; it’s a one-eighty.”

'At least eight weeks prior'

In the 2021 version of the code -- before the proposed A10 and new A10 in the now in-force 2022 code, FCSA umbrella companies were asked to remind staff to take holidays.

The 2021 code further required such reminders to be issued both “throughout the holiday year” and approaching the holiday year end, specifically “at least four weeks prior”.

Updated on Saturday, the FCSA’s 2022 code seems to be more practically-conscious, as it says the holiday year-end approach reminder should go out “at least eight weeks prior”.

'Encourage holidays and holiday pay to be taken'

But again, Champion’s Mr Bloor is hardly an advocate.

“We issue monthly reminders to all employees,” he posted. “[These monthly reminders] provide a cumulative holiday pay total and encourage holidays and holiday pay [to be taken].”

“[And]…if an employee has any retained holiday pay at the end of our holiday year, it will automatically be paid out.

“[Further], if an employee no longer requires our services, then any retained holiday pay will automatically be paid out before their P45 can be issued.”

'Paid in lieu'

Champion’s assurance manager, Mr Bloor said he shouldn’t need to reveal how his umbrella operates but, “some umbrella companies…wish to water down these standards.”

According to the FCSA’s 2022 code (containing the ‘reasonable effort’ test), if an employee’s employment terminates part-way through a holiday year with full accrued holiday entitlement outstanding, “they must be paid in lieu of their outstanding entitlement on termination”.

The in-force code also says that the FCSA permits the carry-over of unused holiday entitlement and so where an umbrella performs carry-over, on termination, any accrued entitlement should be paid to the contractor in lieu.

'Unable to trace the worker by reasonable effort'

“Any exceptions to these requirements must be logged internally with a clear explanation of why the exception arose, and this log kept available for FCSA to inspect,” adds the 2022 code.

“Exceptional reasons can include but are not limited to death, unable to trace the worker by reasonable effort, [and] the worker’s refusal to accept.”

As to how it can be that the FCSA has made this raft of new requirements including the ‘reasonable effort’ test, after just one single umbrella company threatened court action from the proposed clause that they ‘must not retain’ holiday pay, apparently it's easy to explain.

'Open-and-shut case of the tail wagging the dog'

The legal expert said: “That’s simple. It’s an open-and-shut case of the tail wagging the dog.”

Meanwhile on LinkedIn, Mr Bloor issued a few appeals.

“If you own or work for a recruitment/employment business that uses umbrella companies, then in the best interests of your contractors, I suggest that you contact the company and ask them to confirm their holiday pay processes,” he posted.

“Similarly… if you own or work for an umbrella company that doesn’t agree with the above, then you should hang your head in shame.”

'FCSA code significantly strengthened'

But on behalf of the FCSA, chief executive Mr Bryce claims the obligations on its members in relation to contractor holiday pay were on Saturday “significantly strengthened”.

“As explained…[previously to readers of] ContractorUK, it is the Working Time Regulations (WTR) which complicate things for employers and employees alike by making it unlawful for any employer to make payment to an employee in lieu of holiday.”

In a statement on Friday in response to being asked about changes to its code for umbrellas, the boss of the FCSA continued: “The WTR are really health and wellbeing measures, rather than driven by tax or pay, and they enshrine in law that it’s vital that workers should be both entitled to and take paid annual leave."

'Use it or lose it on contractor holiday pay isn't desireable' 

The statement goes on: “That’s why our newly released codes have substantially beefed-up the actions required of [our] members to proactively explain holiday entitlements prominently and clearly to prospective employees before contracts are signed, and regularly and prominently remind their employees to actually take annual leave during their contract.”

Mr Bryce also said the FCSA “understands the difficulties in this area caused by the WTR”, however he added that the association “does not hold the view that the ‘use it or lose it’ principle” is a “desirable outcome” of the legislation.

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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