With contracting growing increasingly popular, more people are working through umbrella companies to ensure they’re paid on time and that their tax and NI contributions are dealt with.
However, while there are morally compliant umbrella companies like Mango Pay in operation, there are others which operate in a non-compliant manner or not in the best interest of the worker. That’s why it’s integral for workers to understand precisely how an umbrella company works before engaging with one.
Over the coming weeks, we’ll be offering key information and guidance on umbrella companies, and answering some of the common questions you have around how they work, the latest legislation and what your rights are. This week, we’re discussing your rights and the rules around expenses and holiday pay.
It was once the case that if a contractor worked through an umbrella company, they could benefit from tax and NIC relief on the costs of getting to and from their assignment locations. However, since April 2016, this has been closed to anyone working under ‘supervision, direction or control’ as to the manner in which you perform your work. As this applies to most workers, it’s extremely rare for a worker to qualify for home to work expenses relief.
That being said, some workers may well fall outside of supervision, direction and control, and others may still qualify for relief on travel expenses incurred while you’ve been working, which could include going from your regular place of work to meet a customer/patient or to a client meeting.
How this works
The umbrella company only has the funds they’ve received from the agency out of which to make payments to you. So any tax-free mileage won’t be paid on top of the contracting rate you agreed with your agency at the outset. Instead, you will:
- contract with the umbrella company for an agreed rate of normal taxable pay, then;
- agree on an amount of mileage or reimbursement for other travel or subsistence expenses, which were;
- wholly, exclusively and necessarily incurred in the performance of your assignment.
Some companies will offer to pay expenses on top of the contracting rate you agreed with the agency. All without accounting for NI and tax. But they MUST meet HMRC rules and are only repayable without tax deductions if relevant receipts are retained.
Beware of end-client companies that offer tax-free expenses without receipts. Often, it’s not possible to do this. That’s because the umbrella company is your employer. They must have the final say on what is allowable as a tax-free reimbursement.
When it comes to holidays, full-time workers have a right to a minimum of 28 days paid leave. That time including bank holidays.
Work on a casual basis or irregular hours? If so, your holiday entitlement is often a percentage of your hours. 28 days is equivalent to 12.07% hours. Here’s an example:
If you work:
- 17 hours in Week 1.
- 20 hours in Week 2.
- 15 hours in Week 3.
- 15 hours in Week 4.
The total amount of hours worked in this scenario is 67 hours.
67 hours x 12.07% = An entitlement of just over 8 hours of paid leave.
Some umbrella companies offer to include an amount for holiday pay in a worker’s wages on an ongoing basis, in a system known as ‘rolled up’ holiday pay. Strictly speaking, this is incorrect as the law states that holiday pay should be paid out at the time annual leave is taken. Yet many workers prefer this rolled up system; that said, any element relating to holiday pay should be separately shown on your payslip.
Are you on a rolled up system and thinking of leaving the employment having taken fewer holidays than you’re entitled to? If so, you should be paid in lieu of the untaken holiday upon leaving.
If you have any questions or concerns around holiday pay and expenses when working through an umbrella company, you can speak to a member of the Mango Pay team on 03300 580 190, or drop us an email on firstname.lastname@example.org.
*Under the Agency Worker Regulations, even more paid leave is available if the criteria is met.