Contractors’ Questions: Is it ok if my umbrella company pays me my holiday pay every week?

Contractor’s Question: I think I may have influenced my manager at this new umbrella company I’m starting with, as I kept going on about take-home!

The manager responded by saying they will pay me my holiday pay as part of my weekly monies in order that my take-home will be at optimum. And that is what I need, given it’s for an inside IR35 role.

But the downside is that when I take a holiday, I won’t get holiday pay because the money will have already been paid out to me in dribs and drabs over the preceding weeks and months as part of my weekly pay.

While this is okay with me, a PSC contractor I know says this arrangement is unlawful, and it certainly isn’t outlined by HMRC in its guidance, which says I’m entitled to paid holidays. Does all this mean my brolly is dodgy?

Expert’s Answer: As an umbrella employee, there are two main options to choose from when considering how you want to receive your holiday entitlement/pay.

Some umbrellas offer you a choice, but some will only offer one solution.

1. Rolled up/ Advance

This option allows you to receive your holiday allowance in addition to normal pay, and your holiday is paid at the same time as your regular pay for hours worked.

This means you won’t be paid anything when you take time off because you have already been paid for your holidays. If you opt for this method (which has been proposed to you), I would recommend you keep the amount that is holiday pay to one side each time you are paid, so you have the funds available when you do take time off.

Details of rolled-up holiday pay must be clearly shown on your payslips.

2. Accrued

This option allows your umbrella company to set aside your holiday pay in a separate ‘pot’ to your usual pay. The amount within this pot accrues alongside the pay that you receive for the hours that you work. When you take time off, you will receive pay from your accrued holiday pot. The important thing to remember here is to make sure you receive all your entitlement.

Compliant umbrella companies will remind you regularly to take breaks and therefore use your holiday pay. They will also ensure any unused holiday entitlement is paid out to you when you leave the umbrella employment, or at the end of the holiday year.

So is Rolled Up holiday pay illegal?

The European Court ruled ‘rolled up’ holiday pay to be illegal in 2006, as they were of the opinion that it went against the rules of the Working Time Regulations (WTR). They said it actually deterred people from taking holidays. The Advocate General, however, suggested that rolled-up holiday pay is not illegal. He stated that rolled up holiday pay is legal so long as there is something in place to ensure workers take their annual leave entitlement. On top of this, any arrangements to include holiday pay within basic pay must be transparent.

In light of these caveats which were provided, it is today fairly common practice for an umbrella to offer rolled up holiday pay, and therefore it isn’t something you should be concerned about.

For workers like you, transparency is the key

Whichever mechanism you choose to receive your holiday pay, it is important that it is transparent and that you understand how it is calculated. This should be clear in your contract with your umbrella – and it should be clear on your payslip. If you are unsure, then you should ask your umbrella directly for further clarification.

The expert was Shelley Ankers-Wainwright, managing director of umbrella company compliance advisory SAW Consulting.

Tuesday 14th Feb 2023
Profile picture for user Shelley Ankers-Wainwright

Written by Shelley Ankers-Wainwright

Shelley is the founder of S.A.W Consulting, a specialist consultancy business supporting Umbrella firms to be more compliant, efficient and competitive.
Printer Friendly, PDF & Email

Sign up to our newsletter

Receive weekly contractor news, advice and updates.

Every sign up will be entered into a draw to WIN £100 Amazon Vouchers.

* indicates required