‘Rolled-up’ holiday pay reforms could boost income for contractors

Contractors working under umbrella companies could receive holiday pay in their payslip in a series of regulatory reforms proposed by the government.

The current process means workers that are entitled to holiday pay aren’t always getting money they’re owed.

This follows an independent report from IWORK, which revealed the UK’s temporary workers are owed an estimated £97 million worth of unclaimed holiday pay.

Introducing rolled-up holiday pay will reduce the ‘administrative burden’ on workers, according to the government’s ‘Smarter Regulation to Grow the Economy’ policy paper.

New regulations on working hours and holiday pay

The Department for Business and Trade published the policy paper on 10 May as part of a strategy to review employment law, following the UK’s exit from the European Union.

Proposed measures include:

• allowing rolled-up holiday pay – this means workers would receive holiday pay with every payslip instead of accrued holiday payments at the time
• removing the requirement for businesses to record employees’ daily working hours to comply with Working Time Regulations

What is rolled-up holiday pay?

Rolled-up holiday pay is when a worker’s holiday pay is included in their hourly rate. This is currently unlawful and employers should be paying based on holiday accrued, meaning workers are paid at the time they take their holiday.

The latest proposals would see rolled-up holiday pay become legal again for the first time since 2006.

What does this mean for contractors?

The proposed reforms to holiday pay should make it easier for contractors to get the holiday pay they’re owed.

IWORK campaigns in support of independent workers and says many flexible workers miss out on their right to holiday pay every year. This is because it can be difficult for workers to understand how much holiday pay they should be getting, and some are unaware of their right to receive it.

Rolling annual leave entitlement into a contractor’s basic pay (if they’re classed as an employee or worker) means they will automatically receive holiday pay in their wages. And as a result, many contractors and temporary workers could see a boost to their income if these reforms come in.

Read more: Am I entitled to self-employed holiday pay?

What does this mean for employers?

If you employ temporary workers and contractors, then current rules mean you should be paying them holiday pay at the time they’re on leave.

However, the new regulations, if enshrined in law, would mean employers:

• will need to calculate annual holiday pay for contractors and include it on their payslip
• would no longer need to keep written records of daily working time as part of Working Time Regulations

Working out holiday pay

Holiday pay is based on your worker’s average pay across the previous 52 weeks. The statutory minimum for annual leave is 5.6 weeks, so basic pay would increase 12.07 per cent to include holiday payments.

It can be tricky to work out holiday pay for workers with flexible hours. Check the government’s guidance on holiday pay and use the holiday entitlement calculator to be sure.

No legislative changes just yet

No changes have come in yet and it’s not clear on when legislation on holiday pay entitlement might be passed. There’s likely to be further consultation on the topic as the government seeks views on their proposals, so keep an eye on the Knowledge centre for the latest updates.

Read more guides for the self-employed

• What does being inside IR35 mean? A guide for the self-employed
• IR35 – the government begins ‘game-changing’ consultation
• Can self-employed people get sick pay?
• Insurance for self-employed people

How do you feel about the government’s proposals on holiday pay? Let us know in the comments below.