Am I entitled to holiday and sick pay as a Limited Company contractor?

Holiday and sick pay – what is your entitlement?

Contracting through a Limited Company has a number of advantages – from higher take home pay to lower tax payments. But being a Limited Company contractor also means having to crunch the numbers to give yourself some breathing space when it comes to taking time off work – planned and otherwise. We’ve put together some handy hints to help you do just that. Ready to exhale?

 

‘Tis the season to be jolly!

Okay, we’re still some way off Christmas, but the summer season is in full swing. Now is as good a time as any to ensure that all your holiday plans are covered, so that Tenerife package holiday you’ve been eyeing up on TripAdvisor doesn’t end up leaving you out of pocket.

As a Limited Company contractor, you don’t qualify for the same holiday and sick pay as a permanent employee. Since you’re not directly employed by your clients (but rather by your own Limited Company), you’re expected to fund these benefits from your Limited Company.

 

Scheduled time off – holiday leave

Burning the candle at both ends almost always leads to one thing – burnout – which can not only harm your health, but hit your purse strings too.

 

Prevention is better than cure, so to safeguard your personal wellbeing and professional longevity in the contracting stakes, you should schedule a well-deserved break from time to time.

 

Theoretically, working as a Limited Company contractor means you can enjoy the freedom of booking holidays whenever it takes your fancy, but this is tempered by the harsh reality that, when you don’t work, you don’t get paid (not by your clients anyway).

 

While taking leave from work will see your finances take a temporary hit, this is preferable to developing a permanent health problem. After all, it’s a lot easier to recover your finances than to restore your health.

 

Unscheduled time off – such as sick leave or bereavement

Package holidays in Tenerife aside, there will inevitably be occasions when you’re unable to work – for example, when you’re feeling under the weather or a close friend or relative dies.

 

If an employee has to take time off work through sickness, they can claim £88.45 per week in Statutory Sick Pay (SSP) for up to 28 weeks. As a contractor (and employee of your Limited Company), you can too. Once upon a time, your Limited Company could foot the bill for the cost of your sick pay and you could recover it from HMRC, but this practice has long since been discontinued.

 

As a Limited Company contractor, SSP is a far cry from how much you’d likely earn on a weekly basis and probably wouldn’t be anywhere near enough to carry you through a period of long-term illness. Additional – more substantial – financial provision is needed.

 

1. Build a good bounty in your Limited Company bank account

Taking time off work will ultimately cost your business. So, you need to count the cost. When planning your annual leave, remember to throw in 10 days or so for unexpected leave (such as illness, bereavement and such) and be sure to factor in the eight Bank Holidays we have each year.

 

With the average holiday entitlement standing at just over five weeks, this will leave you with a shade of over 44 weeks to work every year, which should be used as a starting point to setting your rates. Then, you can work out how much salary and dividends you need to pay yourself from your Limited Company to cover the cost of your annual holiday and sick leave.

 

At Intouch, we routinely advise our clients to “set aside at least four weeks out of their annual contractor take home pay to ensure they’ll have enough time for holidays, birthdays, potential sickness and general time off.”

 

2. Insure yourself to the hilt

When you’re partnered with the right package, insurance can be a Limited Company contractor’s best friend.

 

In terms of covering the bases of holidays and sickness, there are two main kinds of insurance cover that you’d be wise to consider taking out:

  • Income protection insurance replaces your income with a monthly payout in the event that you’re unable to work due to an accident, ill health or unemployment
  • Critical illness cover pays out a tax-free lump if, during the term of the policy, you’re diagnosed with a specific illness or medical condition listed in your policy document

 

When you’re in the market for Limited Company contractor insurance, regular insurance firms may not provide you with the cover best suited to your circumstances.

 

This is where we come in. Here at Intouch, our accountants have a good working knowledge of Limited Company contractor insurance products, insurance providers and the insurance industry as a whole. They’re on hand to advise you on the best insurance firms to approach for a quote (spoiler alert: our insurance provider of choice is Kingsbridge Insurance).

 

Contact us today for a no-obligation chat about your work situation.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

Sickness and holiday pay – a permie perk or open to all?

Sickness and holiday pay

When contracting through your own Limited Company you’ll be aware that you’re not entitled to the same access to sickness and holiday pay as permanent employees are. So it’s up to your company to make provisions for your absences – planned or otherwise.

 

Louisa Drewett, Director of Accounting and Tax at Intouch Accounting, advises her clients; ‘to set aside at least 4 weeks out of their annual contractor take home pay to ensure they’ll have enough time for holidays, birthdays, potential sickness and general time off.’

 

As a contractor, you can claim up to £88.45 per week (up to a limit of 28 weeks) in Statutory Sick Pay (SSP) from your Limited Company if you have to take time off through illness. Remember that it’s your Limited Company that bears this cost and that it cannot be reclaimed from HMRC.

 

The SSP regulations are complicated but information is available online from HMRC or your accountant.

 

SSP will probably not even come close to what you’d expect to earn per week as a contractor, so you will need a backup plan…

 

Aim to keep a sum in reserve to tide you over in the event of sickness.

 

What about protection?

It’s also sensible to consider insurance:

 

  • Income protection insurance – pays an income if you’re unable to work due to illness or accident.
  • Critical illness cover – pays out a lump sum if you get one of the specific medical conditions or injuries listed in the policy.
  • Life insurance – pays your dependants money as a lump sum or as regular payments if you die.

 

When shopping around for insurance, remember that traditional insurance providers may not offer the cover you need. Your contractor accountant may also be able to offer some advice on who you should approach for a quote.

 

Holiday pay

As a contractor, you’re your own boss, so in theory you can plan and take holidays whenever you wish, but bear in mind that you won’t receive holiday pay. For your personal and professional health, it’s vital to get some downtime. If you take this between contracts when a natural break is expected, it will impact your income. You will be revitalised and less likely to have “slumps” where you lose motivation, which in turn impacts on your income.

 

Consider your finances; can you afford a break at the time you’re considering one and if so, for how long? Remember you’ve also got to pay for the holiday itself!

 

It’s prudent to squirrel away money throughout the year into a holiday fund.

 

Final thoughts

When it comes to holidays, cut your coat according to your cloth. It may have to be a weekend in Whitby rather than a fortnight in Florida (not that there’s anything wrong with Whitby), but you’ll benefit from the rest just the same.
Remember to ensure you pay your downtime and health the same level of attention as you do for your contracting career. One cannot exist without the other, so take care of both.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.