In an unregulated industry and in the run up to the roll-out of the Off-Payroll legislation in April it has never been more important to speak out for the compliant providers of umbrella employment and remind recruiters to avoid one of the many payroll companies that are masquerading as an umbrella company without fulfilling the obligations that come as an umbrella employer, particularly when it comes to a contractor’s holiday entitlement. Crawford Temple is CEO of Professional Passport, the largest independent assessor of intermediary compliance and here he outlines what a compliant umbrella firm should be providing.
Accrued Holiday Pay
As part of the employment contract between a contractor and an umbrella firm, holiday pay is defined as being accrued and is the default model used. Some umbrella companies define rolled up, or advanced, as their contractual default but Professional Passport cannot accredit any company with these arrangements as they are unlawful.
Should an employee want their holiday paid to them automatically with each pay run, which the majority do, there is an accepted convention that a worker should supply the umbrella with a signed written request, outlining what is being requested and the consequences of such a request, such as there will be no further holiday pay available for the worker during periods when they are not working. The worker can change this back to accrued holiday at any time.
The contract will also specify a ‘Holiday Year’ where any accrued holiday must be taken within this period. Failure to take accrued holiday during the year can result in a worker losing their entitlement. This is a stipulation open to exploitation by unethical non-compliant umbrella companies which fail to inform contractors of their entitlements. Professional Passport’s compliance standards insist that providers write to any employee, outlining the balance of their holiday fund, each month in the three months leading up to holiday year end stating clearly that if the holiday is not taken before the end of the period it will be lost.
Professional Passport has also worked with all the main IT solutions supplying software to umbrella companies to ensure their payslips and pay statements are transparent in this area. An accredited compliant umbrella will always clearly show any holiday pay that is due to the worker on all pay statements, which is also a requirement of the Professional Passport accreditation.
Transparency is key to ensure workers remain fully informed, even when they might have failed to read the terms of their contract.
Qualifying Pay
Rulings through The European Court of Justice dictates that it is now accepted that holiday pay should be calculated on the gross taxable earnings of workers. Many umbrella companies structure their contracts around a salary, usually aligned to the National Minimum Wage along with a bonus payment. In the past, holiday pay was calculated on the salary only but following the introduction of legislation, the calculation must cover both the salary and bonus elements of pay.
When paid to the worker, whether rolled up or accrued, the full allocation should be made, generally equating to 12.07% of the qualifying earnings. A provider cannot deduct margin or employment costs from this amount.
A compliant provider must calculate the holiday pay on all elements of gross taxable pay. It also ensures that the worker receives the full allocation with no deductions made.
Clear Payslips
Holiday pay, when paid, should be clearly stipulated on the payslip as holiday pay. Failure to do so could leave providers open to challenges from employees who might claim to be unaware that their total pay included holiday pay. An accredited compliant provider must itemise holiday pay separately on every payslip issued.
Payment on leaving
A compliant umbrella should pay any outstanding holiday pay balance automatically to a worker on leaving the umbrella. Some non-compliant providers have clauses written into their contracts with contractors stipulating that workers need to put in a request for outstanding holiday is paid. In many cases, the request is not made. This is not ethical and does not align with the standards required for accreditation.
The message is clear: recruiters should conduct their due diligence and ensure they are working with accredited umbrella firms that have undergone robust and rigorous assessment so that they can work together for the benefit of everyone in the supply chain.
