Holiday Pay – Contractor Umbrella Company

11/05/2014 - 10:55
Holiday pay is in the news following a landmark tribunal case that ruled that overtime should count towards a workers holiday pay rate. What this means is that if overtime is part of your normal working week then you should receive a similar wage when you are also off on holiday i.e. it should not revert back to your basic wage excluding overtime.
Businesses could also potentially elect at the time of paying you overtime to pay you an additional 12.07% to reflect holiday pay in lieu of entitlement. 
This is therefore likely to impact significantly on businesses that regularly pay their staff overtime. Backdated claims are however only allowed for holidays taken in the last 3 months. 
Negative impacts could be businesses cutting overtime rates to absorb this additional cost or stopping overtime altogether.
How though does this affect contractors working through a PAYE Umbrella Company?
Our initial review is that this will not affect contractors or umbrella companies.
Agency Workers Regulations (AWR) already dictate that flexible workers have to be paid rates along the same lines as permanent staff so they will be fully protected in this respect. Pay that falls within AWR includes overtime rates. 
Recruitment Agencies and Umbrella Companies do therefore have to ensure that this is reflected in their AWR review when looking at what overtime the worker may be performing.
The way an umbrella company structures its payroll is that the umbrella company makes a payment based on earnings to reflect holiday pay in lieu of entitlement. The flexible worker (or contractor) has therefore already been deemed to have been paid for their holiday entitlement. AWR ensures that this is the case.
An Umbrella Company allows contractors to take numerous assignments without having to change employment. It helps take away the stress of contracting and enables the worker to benefit from tax free reimbursement of expenses incurred in travelling to temporary assignments.
If you would like to know more about working through an Umbrella Company please call us on 0800 121 6513.