Understanding Holiday Pay Under Working Time Regulations

Holiday pay remains one of the most common areas of non-compliance for umbrella companies. Recent tribunal decisions have further clarified employers’ obligations, making it essential for umbrella companies to review their calculations.

The Legal Framework

Under the Working Time Regulations 1998, workers are entitled to 5.6 weeks’ paid annual leave per year. For umbrella company workers, this is typically calculated as 12.07% of gross pay, though this method has come under scrutiny.

Key Considerations

• Rolled-up holiday pay: While technically unlawful under EU case law, HMRC has indicated it will not penalise employers who use this method provided workers are not disadvantaged.
• Reference period: Holiday pay should be calculated using a 52-week reference period (excluding weeks with no pay), ensuring variable-hours workers receive fair holiday pay.
• Regular overtime: Compulsory and regular voluntary overtime must be included in holiday pay calculations for the first 4 weeks of leave (Reg 13 leave).

How PaySentry Helps

Our forensic payslip auditing automatically checks holiday pay calculations against current regulations, flagging any discrepancies or underpayments.