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Umbrella workers set to benefit from holiday pay changes

Move means umbrella and agency workers are less likely to see holiday pay withheld by unethical operators

Reforms to the Working Time Regulations, effective 1st April, mean that flexible and irregular-hours workers are set to benefit from the introduction of rolled-up holiday pay.

This method of calculating holiday pay has been made lawful, formalising its use among businesses and helping to ensure that umbrella workers, among others, will receive their holiday pay – something which is not always the case.

From 1st April, these workers can request that their holiday pay be calculated and paid in this way. If so, they will receive their holiday pay – calculated at 12.07% of their hours worked in a given pay period – on top of their assignment fee. 

It will also offer businesses a simpler way of calculating holiday pay. Many businesses were likely already using the method because it is more straightforward; something acknowledged by the government during an earlier consultation. As such, making it lawful formalises its use.

The move will also offer more robust protections to flexible workers, who have previously been vulnerable to having their holiday pay withheld by unethical operators.


The benefits of rolled-up holiday pay

One of the key advantages of rolled-up holiday pay is that irregular-hours workers will benefit from the same paid holiday entitlement as full-time, permanent employees. Holiday entitlement paid on top of an assignment fee also means the move will offer a pay boost to these workers. 

Under other methods of calculating holiday pay, irregular-hours workers receive their holiday pay when taking annual leave. However, many flexible workers operating via umbrella companies and employment agencies do not take annual leave on or between assignments. 

This means that holiday pay can go unclaimed or is sometimes withheld by the umbrella company or employment agency, rather than being paid to the worker as it should be.

As such, the change will limit the opportunities for providers to withhold holiday pay. 


Change will prevent ‘profiteering’ by agencies and umbrellas

Speaking about the government’s decision to make rolled-up holiday pay lawful, Julia Kermode – former CEO of the Freelancer & Contractor Services Association (FCSA) – said the change had “been a long time coming.”

“For far too long, temps and contractors have been denied their holiday pay”, Kermode said. 

“Unbeknownst to them, it has been accrued or saved up elsewhere in order to be paid when they take holiday – which misses the fundamental point that many of these workers don’t actually take holiday mid-assignment.

“Once the assignment has finished, contractors move on to the next role without knowing that there is unpaid holiday entitlement owed to them. This is open to abuse by profiteering agencies and umbrellas which fail to tell contractors that holiday has been accrued – or how to claim it.”

Kermode says that, while morally questionable, withholding holiday pay “can be done perfectly legally if the correct loophole” is used. 

“With rolled-up holiday pay now being officially legitimate, there is no excuse for contractors to continue being denied their hard-earned cash”, Kermode says.

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