Understanding umbrella company holiday pay is essential for contractors and freelancers working through umbrella arrangements. Wondering how holiday pay works with your umbrella company? You’re entitled to the same minimum leave as any UK employee, but the payment process works a bit differently.
This is because of the nature of typical umbrella working arrangements, where you may work on short‑term or irregular assignments with breaks in between.
Key Takeaways:
- 5.6 weeks minimum annual leave entitlement
- 12.07% of your gross pay funds your holiday
- Choose between accrued or advanced payment options
- Only use FCSA-accredited umbrella providers
Your holiday entitlement as an umbrella worker
Under the UK Working Time Regulations, workers are entitled to at least 5.6 weeks of paid holiday a year. For someone working a full year on a 5‑day‑a‑week pattern, this usually works out as 28 days of paid leave, and employers can choose to include bank holidays within that entitlement.
For umbrella workers on irregular or varying hours, it is common to express holiday entitlement as a percentage of hours or pay. We arrive at the 12.07% figure by dividing 5.6 (weeks of statutory holiday) by 46.4 (the remaining working weeks in the year), then rounding the result. This percentage comes in handy when discussing your assignment rate and understanding how much of your pay package relates to holiday.
Understanding how your holiday pay is funded
Unlike many permanent roles, an umbrella worker’s holiday pay is funded by the agreed assignment rate the agency or client pays to the umbrella. In other words, holiday pay is not an additional 12.07% on top of the contract rate; it is a portion of the overall rate that is reserved to cover your statutory annual leave.
Payment in respect of annual paid leave will generally be made out of your annual paid leave reserve fund, which accrues at the rate of 12.07% of your Total Gross Pay. To arrive at your Total Gross Pay from the assignment rate, you calculate this by using the following formula:
Your Contracted Rate – Umbrella Margin – Employer’s National Insurance – Apprenticeship Levy (and any other employer costs, such as employer pension contributions where applicable) = Total Gross Pay.
You can use our online calculator to work this out, or call us on 0117 311 9800 for a pay illustration.
Two ways to receive your holiday pay
Umbrella workers are typically presented with two options when deciding how to receive their holiday pay, and the same applies to us at SmartWork.
Accrued holiday pay
Our employment contract legally states that holiday pay is accrued and paid when the holiday is taken. Under this option, we set aside the holiday portion of your pay into a separate “holiday pot”, which you then receive when you book and take leave. If you are comfortable accepting a slightly lower weekly or monthly pay, you can build a lump sum to fund your time off.
Advanced holiday pay (rolled-up holiday pay)
The other option is advanced holiday pay, sometimes called rolled‑up holiday pay. Under this method, the appropriate proportion of your holiday pay is paid in each pay period (weekly or monthly), and your payslip will include a separate “Holiday Pay” line, so it is clear what you have received to date. Because your holiday pay is always paid up to date, there is normally no accrued balance left when you leave your umbrella provider.
You can select which option you prefer when you register with your umbrella provider, and any compliant provider should be able to explain clearly how your holiday pay will be shown on your payslips.
What to look out for
In recent years, some non‑compliant umbrella companies have made headlines for withholding or keeping contractors’ holiday pay. Your holiday pay is your money, and a compliant umbrella should not retain accrued holiday pay when you finish an assignment or leave the company; you should either have taken and been paid for your leave, or receive any outstanding amount in your final pay.
It is crucial that you work only with a reputable, compliant umbrella provider. The most prominent accreditation body in the umbrella sector is the Freelance and Contractor Services Association (FCSA), whose members are independently assessed against strict standards of tax and employment law compliance. FCSA accreditation is widely recognised in the market as a strong indicator of a transparent and compliant umbrella.
Getting your holiday pay right
Understanding how umbrella company holiday pay works helps ensure you receive your full entitlement and plan your time off with confidence. Whether you choose accrued or advanced holiday pay, a compliant umbrella provider will make the process transparent and straightforward, with clear documentation on your payslips.
If you have questions about your holiday pay calculation or want to understand how different payment options would work for your situation, our team is here to help.
About SmartWork
SmartWork has been a member of the FCSA since 2015 and continues to undergo its rigorous independent audit annually to ensure compliance and maintain the highest customer service standards. Contractors working with us receive the full range of statutory benefits and holiday pay through either the accrued or advanced option described above.
Our contractors value the personal approach of our designated business managers, so why not give them a call and see how we can help you on your contracting journey. Our number is 0800 434 8446, or feel free to send us a message at info@smartwork.com.
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