Umbrella Companies & Unlawful Holiday Pay Entitlements

When compliance is unlawful

The topic of holiday pay and how it relates to umbrella companies have not been far from the headlines in recent months, as certain brollies have been called out for failing to pay contractors their holiday pay.

But FCSA CEO Chris Bryce has recently explained that UK legislation makes holiday pay more complicated than it first seems. In a recent article, Bryce points out the “Catch 22” that umbrellas face when making holiday pay decisions.

But why is it so complicated?

Holiday pay has been a hot topic lately. And with several recent high-profile cases hitting the news, compliant umbrella companies are keen to prove their honesty by making sure that contractors take their full holiday pay entitlement. The current slew of media attention has largely been around ensuring that workers are paid a lump sum on termination of their employment to ensure that they get the full amount due.

But it’s not that straightforward for continuing employment.

The assignment rate of an umbrella worker will contain an element to cover the contractor’s holiday pay. As a result, the worker should be entitled to take that money regardless of whether or not they choose to take a holiday. And many contractors will choose to take their holiday pay in lieu, as a way to boost their earnings.

But due to Working Time Regulations, this puts umbrella companies in a tricky position.

What are the Working Time Regulations (1998)?

The Working Time Regulations (WTR) were put in place to protect the health and safety of workers, by putting limits on the number of hours they can work each week, as well as minimum requirements for rest periods and annual leave. WTR are designed to keep workers healthy by ensuring that they get enough breaks to protect their well being.

This means that, according to legislation, workers must take their annual leave as leave, to remain within the boundary of the law.

Umbrella companies and unlawful holiday pay

This is where umbrella companies face a catch 22. 

Compliant umbrella companies want to ensure that workers get the holiday pay they are entitled to, but effectively, if they pay their contractors holiday pay in lieu, they are acting unlawfully. It might be deemed that they are discouraging workers from taking the leave that they should for their health and wellbeing.

But another common umbrella practice is also potentially in breach of WTR. If the contractor has been paid in advance of their holiday and then receives no payment when they take their annual leave, it could leave them in a difficult financial position, this will make them less likely to take the leave. Again, the whole point of WTR is to protect the worker from working for too long without a period of rest.

As Bryce states in the article, “we have a Catch-22. If the worker gets paid advance holiday pay, that’s unlawful. If the worker gets paid in lieu of taking holiday to which they’re entitled, that’s also unlawful. Yet the worker, with good cause, is frustrated and angry if they ‘lose’ holiday pay.”

The FCSA are stepping in

The FCSA is lobbying for a change to the WTR to allow lawful payments for holiday pay, putting the contractor in the driving seat of their annual leave. It is a delicate subject, however, as the WTR is designed to protect the workers from dodgy employers who might refuse their annual leave entitlement.

So, unpicking this piece of legislation and putting it back together in a way that will ensure the protection of workers wellbeing, as well as the protection of the payments they are entitled to, might take some time. But the FCSA have pledged to strive to find a way out of this holiday pay Catch-22.

Ship Shape and FCSA

We at Ship Shape have just received our accreditation from the FCSA, so we will be diligently looking for any changes in their codes to reflect how compliant umbrella companies can navigate this situation for our contractors. 

The current FCSA guidelines, as followed by Ship Shape, are to ensure that all workers fully understand their holiday entitlement and are given reminders to take their annual leave. We also make sure that all our contractors receive their full holiday pay, even if they choose not to take their leave.

If you would like to discuss holiday pay entitlements, get in touch today!