Susan's Legal Bits

In December 2008 Susan was interested in.....

....explaining why we reserve
umbrella company holiday pay.

Hi Everyone!

Is it too soon to wish you all a Merry Christmas? Because I'm getting excited already! I know it's a long piece this time, but holiday pay is a huge topic and something I have long wanted to explain. Enjoy, sit back with a cup of tea for this one and don't forget to write to me any time...

Since 1 October 2007 all employed workers have had a statutory right to at least 4.8 weeks paid annual leave (24 days paid holiday if you work 5 days a week) and this will increase to 5.6 weeks (28 days) as at 1 April 2009. This entitlement is inclusive of the 8 bank holidays per year in the UK.

Those employees working part time are entitled to a pro-rated amount, i.e. 4.8 times their normal working week.

Therefore, by law, your employing company has to pay you your contractual wage for the holiday that you take. (Self-employed workers have no right to paid annual leave).

Using the umbrella product you have agreed to work for a contracted wage and, if when all costs of employment are deducted there is money left over, for a profit share. These employment costs include a reserve for holiday pay and expenses which you have claimed. We have to fund the holiday pay like this because when you are not working, by law, we have to pay it out.

Many operatives ask whether they can 'opt-out' of having their holiday pay reserved for them but unfortunately this is a request Gabem cannot fulfil. If holiday pay is not reserved for you then when you do take holiday there would be no holiday pay to give to you - thus we would all be breaking the law.

Some of our operatives also ask if they can class Saturdays and Sundays as their holiday days and of course if those are part of your normal working week you can certainly request the holiday pay for them when you don't work. However, as our operations team always say, if you have worked Monday to Friday and are claiming Saturday and Sunday as holiday to gain your reserved holiday pay then all that money will be coming to you in one payment the following Friday. With your normal pay and holiday pay all coming in one payment you are not taking advantage of the £105 tax and NI free threshold that you could have used if you took your holiday pay on its own in a week when you weren't receiving any other payment.

Another question I often get asked is why the holiday pay is so low. The answer is that holiday pay is based on your contracted pay, which in this case is the same as the National Minimum Wage. Any additional payment is profit related as described above, and this allows you to claim legitimate expenses before the profit related pay and its tax are calculated.

You cannot elect never to take holiday - the law was brought in to dissuade people from working all the hours god sends and to make it illegal for employers to force employees to work constantly in a year without a proper break away from the office. This is why you must take your holiday pay before the end of the holiday year which in our case isthe same as the tax year: April to April.

I realise a few clients find the holiday pay system difficult to understand and sometimes frustrating, especially when you consider it to be 'your' money and you should be able to have it whenever you want. But we encourage you to take holiday and always inform us so that we can pay out your money when you need it.

For those of you in the construction industry we run a Construction Industry Holiday Pay scheme which means that no NI is paid on the holiday pay when it is paid out which saves you further money.

The holiday pay situation is clearly only for employees. If you believe you could be classed as self-employed why not give us a call and go through the HMRC approved checklist with us - if you are working as self-employed, our Solo or CIS products may be the best for you - in that option no holiday pay is deducted and reserved for you and you receive all your income as it comes in; less our very reasonable margin!

I trust this helps clear the fog but any questions you know where I am.

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All comments provided on my blog are for informational purposes only. My thoughts and opinions are my own with agreement from my employer as being suitable for sharing with the wider world. Any advice, or writing that might be taken as advice, should not be deemed in any way as professional Legal advice and are only the musings of a HR practioner whose sole aim is to help where she can.