Danbro umbrella

A significant benefit of working through an umbrella company is your entitlement to statutory payments. This includes things like sick pay, maternity and paternity pay, and holiday pay.

By law, the moment you become employed – be it full time, part-time, or on ‘zero-hours’ – you’ll start earning holiday pay. But many remain unsure about how a contractor’s holiday pay gets calculated, how much they’ll get paid, and how much annual leave they’re entitled to. In this extensive guide, we’ll answer all these questions and more.


1. Do umbrella company contractors get holiday pay?

Yes. As an umbrella company contractor, you’re entitled to 28 days’ holiday (or ‘annual leave’) per year. This amount is subject to change if your end client stipulates a higher number of holiday days. Your holiday pay will be clearly stated within your employment contract.

Interested in what else you get with Danbro Umbrella? Check Out Our Solutions.

2. How does umbrella company holiday pay work?

With Danbro Umbrella, your holiday pay will be included every time you get paid. The exact amount will be clearly displayed on your weekly/monthly payslip.

When you sign the terms and conditions of your employment with Danbro Umbrella, you are agreeing that – as per Appendix 2 of your contract – your holiday pay will be advanced to you, or ‘rolled up’, each time you get paid.

This is the most common method adopted by UK umbrella companies and means that you’re always up to date with your holiday pay entitlement.

3. How much annual leave am I entitled to as a contractor?

As an umbrella contractor, you’re entitled to the statutory entitlement for annual leave from the 52-week calendar year. As discussed above, that is at least 28 days. This equates to approximately 5.6 working weeks, leaving you with a total working year of 46.4 weeks.

To work out your holiday entitlement, the statutory entitlement figure is then divided by your total working year, leaving you with 12.07%. So, in simple terms, for every hour you work, you’ll accrue an extra 7 minutes of holiday entitlement.

Understanding holiday pay as an umbrella company contractor can seem quite complex. So, let’s try and simplify it using an example.

Your pay is like a pie [insert favourite flavour here] and your holiday pay is a percentage of that pie. But, and here’s the complicated caveat, a few slices need removing before we can work out what that percentage actually amounts to.

First off, the initial amount is not yet ‘your money’. It’s your umbrella company’s income for the work completed.


  • Margin retained for the cost of your employment

Next, go some other slices:

  • Employer’s National Insurance
  • Employer’s pension contributions


  • The Apprenticeship Levy

The figure we’re left with is your Total Gross Pay (TGP).

This is equal to your contracted rate (the original pie), minus the various deductions (slices) stipulated above.

Your TGP then gets divided by 1.1207 (see annual leave entitlement) to calculate your Gross Income (GI).

Your holiday pay is the difference between the amount you’re then left with (your GI) and the figure you had before (your TGP).

What happens next is, your holiday pay portion gets added back on to your GI, to give you your TGP once again.

Still with us?

Your TGP is then subject to Income Tax, Employee’s National Insurance, and Employee’s pension contributions before you get a net take-home wage to tuck into.

Be warned though, some umbrella companies have been known to eat your slice of holiday pay pie! Whether it’s through a ‘use it or lose it’ type ploy, or by not paying out a held balance when the umbrella contractor leaves the company. Hence the importance of compliance when it comes to choosing your umbrella provider.

Here’s an example of how your umbrella company holiday pay gets calculated within the context of other potential deductions. Please note, this example is as per the 2022/23 tax year.

Let’s say your contracted rate is £1000. That money gets sent to your umbrella company, as income for the work completed.

Here’s what happens next:

  • £27.00 is retained to cover the margin
  • £93.60 gets deducted for Employer’s National Insurance
  • £22.00 gets deducted for Employer’s Pension Contributions
  • And £4.27 goes towards the Apprenticeship Levy

At this stage, your holiday pay stands at £91.88. This is then temporarily deducted, as per page 2 of your payslip. In simple terms that’s:

  • 1000 (Your Contracted Rate)

– £27.00 (Our Margin)

– £93.60 (Employer’s National Insurance)

– £22.00 (Employer’s Pension Contributions)

– £4.27 (Apprenticeship Levy)

= £853.13 (Total Gross Pay / TGP)

  • £853.13 (TGP)

÷ 1.1207 (Statutory Holiday Entitlement)

= £761.25 (Gross Income / GI)

  • £853.13 (TGP)

– £761.25 (GI)

= £91.88 (Holiday Pay)

As your holiday pay is subject to tax and National Insurance contributions (NICs), it gets fed back in (added as ‘your money’ on page 1 of your payslip). As you can see above, this leaves your Total Gross Pay at £853.13.

The following statutory deductions then apply:

  • £122.28 in Income Tax
  • £61.11 in Employee’s National Insurance
  • And £29.21 in Employee’s Pension Contributions

When all that’s taken care of, the remaining funds are then transferred to your bank account. So, you’ll have a net take-home wage of £640.53.

The example above shows what happens if your holiday pay gets rolled up. As you can see, the accrued amount has been fed back into your total gross pay, making sure you’re completely up to date with your holiday entitlement. This action is clearly displayed on your payslip.

Holiday pay, along with bonuses and overtime pay, is a taxable income. It is therefore subject to statutory deductions such as Income Tax and NICs.

Transparency is key when it comes to contractor holiday pay. Before you enter into a contract with an umbrella company, you need to make sure that they have in place a clear, transparent holiday pay structure. Always make sure you check the terms of your contract – and their company handbooks – carefully. This ensures that you’re aware of exactly how and when your statutory payments are made. Contractors ought to be wary of ‘less compliant’ umbrella companies.

Under the Working Time Regulations (1998), when you take your annual leave, your holiday pay MUST show up as a distinct entry on your payslip. Don’t worry, though, we’ll take care of all this for you.

Get started with Danbro Umbrella Today

Sam Wright
Article written by
Sam Wright
Marketing Manager
12 February, 2024
Sam Wright is Danbro’s Marketing Manager. He produces regular content and feature articles on our digital and non-digital channels – and social platforms – for the Danbro Group and its subsidiaries, as well as having responsibility for the Company’s internal and external communications. His background is in Journalism and Creative Writing, having previously contributed to publications such as The Daily Post, The Lancashire Evening Post, and The Blackpool Gazette. He is a keen swimmer and avid Manchester United fan (but don’t hold that against him), and he lives in Lancashire with his wife, Sarah.

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