In more recent years Umbrella Companies have become more and more popular but there can still be some confusion about what one actually is.
An Umbrella Company is a business that employs agency workers and any other temporary workers with a continuous contract of employment. In order to meet this requirement, the umbrella company needs to pay you for 336 hours of work/year at the minimum wage.
As an employee of the umbrella company, you have the same rights as any other employed person. This includes the right to be paid minimum wage, the right to holiday pay (discussed further down) the right to be in a pension scheme (if you meet the criteria) and the right to statutory benefits such as sick pay and maternity/paternity leave (if you meet the criteria).
However, there are other benefits to using an umbrella company:
- Continuous employment from agency to agency
- Preventing emergency tax issues when starting with a new assignment/agency
How does it work?
- From the contract rate the Umbrella retains their margin and covers all the employer costs. The remaining money will be paid to the worker under PAYE.
- Worker works for the end client, usually under supervision, direction and control.
- End client pay the agency for the services provided.
- Agency will retain a margin (charge) from the end client for the workers services and then pay the contract rate for the workers services to the Umbrella Company.
How does holiday pay work?
Full time employees have the right to 28 days’ paid annual leave including bank holidays. If you work on a casual basis or irregular hours, your holiday entitlement will be based on the percentage of 12.07. The 12.07% comes from the fact that 28 days holiday is equivalent to 5.6 weeks of the year, you divide this figure by the remaining weeks of the year (46.4) which then brings you to 12.07%
As an umbrella employee you can choose to have your holiday pay in your wages on an ongoing basis each time you are paid, or retained for when you are on annual leave when you will receive the holiday pay for the days you have taken.
Similar to the employment costs (ER NIC, ER pension, Apprenticeship Levy) the holiday pay is taken from the contract rate that the umbrella company receives from the agency. As mentioned above, the holiday pay is never deducted from the worker unless you wish to have it retained each pay period.
Holiday pay is shown separately on your Payslips to show it is a reallocation of your money.