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News - 21-02-2024 - - 0 comments
Contractors: claim your holiday pay before April, or lose it.

Unclaimed holiday pay is one of the easiest ways an unscrupulous umbrella company can make a profit at the expense of the temporary workforce. Every worker is legally entitled to paid annual leave, but by not being transparent about what is owed or clear about how or whether it is being paid, it is much harder for a contract worker to access this money. By failing to inform a worker that they have annual leave still to claim, an unscrupulous firm can use the worker's holiday pay to supplement their own profits.

And whilst this is unethical, it is not illegal.

There are currently no rules in place that prevent an unscrupulous payroll provider from acting in this way. And once the financial year is up at the beginning of April, or a worker leaves an umbrella company, any unclaimed holiday pay is lost to the worker who has earned it.

Changes to temporary worker holiday pay

 From 1 January 2024, the government reformed holiday pay and entitlements. Among changes, it has become lawful to pay temporary workers 'rolled up holiday pay' for leave years beginning on or after 1 April 2024. If calculated correctly, rolled up holiday pay ensures that temporary workers receive the holiday pay they are owed added on to their weekly or monthly pay. This way, there should be no unclaimed pay at the end of the year.

Rolled up holiday pay was previously ruled as unlawful by the Court of Justice of the European Union as it disincentivises workers from taking holiday. However, with some unethical payroll providers withholding annual leave entitlements, rolled up pay may be a safer prospect. Payments are automatically transferred to the worker as part of their payslip, rather than being 'accrued' with the payroll provider in a separate pot waiting to be claimed, or not.

Making rolled up pay lawful has been welcomed by the industry, including the PCA, with many pleased that the government has taken a positive step towards supporting the temporary workforce against those seeking to make a profit at their expense.

Rolled up holiday pay could boost temporary workers' take-home-pay by thousands of pounds every year, money that may previously have gone unclaimed. However, it is important to note that rolled up holiday pay is a choice and workers still have the option to accrue their holiday instead. Receiving rolled up holiday pay does mean that if a worker takes annual leave, they will not be paid for it.

All information and agreements about pay and holiday entitlement should be included in the Key Information Document a worker receives when joining a payroll provider. It is important that contract workers check their payslips and holiday pay entitlement with their umbrella company to ensure they are receiving what they are owed.

How to check your holiday pay

Payslips can be confusing. There are multiple sections to check, including take home pay, tax, and any additional fees agreed with recruitment firms and payroll providers. Annual leave may not be mentioned on the actual payslip, and so it is important that temporary workers are aware of how holiday pay is calculated so they can get an accurate picture of what they are owed.

The government has provided some useful information to help contract workers calculate their holiday pay. See their full guidance here. A compliant and ethical umbrella company should also explain these calculations and the options available in terms of holiday pay.

In summary, a worker is entitled to 28 days of annual leave entitlement, or 5.6 weeks, per year, which includes statutory bank holidays. This is then divided by 46.4 weeks, the remaining number of weeks in the year, equalling 12.07 per cent. This rate is then applied to the worker's wage based on the average number of hours they have done over 52 weeks of active work with the same organisation, within the previous 104 weeks. This is a general calculation and would need to be adjusted to individual circumstances.

For contract workers, the period of active work with an employer may be as short as two weeks, and so holiday pay should be calculated based on this. For example, if a worker started with an employer two weeks ago, the employer would review the pay data that is available to them from the past two weeks to calculate the worker's annual leave entitlement.

Having a clear picture of annual leave and holiday pay entitlements will help temporary workers ensure they are not taken advantage of by an unscrupulous umbrella firm and that they receive the pay they have worked hard to earn. In April, any unclaimed holiday pay will be lost, so the PCA is urging temporary workers to speak with their umbrella company, scrutinise their payslips, read the government guidance provided, and reach out to an expert for support if they need further clarification.

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