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

Holiday and sick pay – what is your entitlement?

Taking time off work, whether it’s planned or otherwise is rarely an issue for permanent staff, as their pay is usually undisrupted as it’s covered by the terms of their employment. So what happens when you’re a contractor and you’re not covered by the same terms? We’ve put together this blog to highlight some handy hints and tips to help you prepare for any time out of contracting – planned or otherwise.

 

Planned time off – annual leave

We love a good holiday here at Intouch Accounting, and believe it’s never too soon to be planning your next great adventure. With Christmas not too far off, and a whole world of possibilities when it comes to holiday destinations for next year, now is the time to plan ahead for your expected time off. Most importantly when doing so we like to ensure our clients have considered how their planned breaks will not leave them out of pocket.

 

So how do you achieve this?

Firstly with the help from your Intouch Personal Accountant of course! A quick chat with them will reveal how to best plan your breaks and the impact (be it big or small) taking that time out will have.

 

When it comes to scheduling time off, it’s a good idea to firstly consider your current contract and whether there’s a natural break between it ending and your next one starting. This would be a perfect time to book some time off, as it will fall within a natural break in contracts and will cause the least amount of disruption. It will also mean you’re super refreshed and ready to tackle your new contract once it starts.

 

Unscheduled time off – such as sick leave or bereavement

Sometimes we all need to take unscheduled time off work, and rarely is it foreseen.

If a permanent employee takes time off due to illness, they’re entitled to claim £89.35 per week in Statutory Sick Pay (SSP) for a maximum of 28 weeks. As a contractor and therefore employee or your Limited Company, you’re also entitled to the same.

 

Whilst SSP can be a welcome stream coming into your account, it will certainly be nowhere near the amount you’re used to from your contracting wage. So it’s worth having a contingency plan in place to ensure you’re covered for such eventualities.

 

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

Taking any time off (planned or otherwise) will ultimately cost your business, so it’s worth putting in the time now to plan ahead. When planning your finances, ensure you account for at least 48 weeks, leaving you 4 to cover holidays and sickness (or more if you plan to take more time off). You’ll also need to consider the 8 annual bank holidays, as that’s another benefit permanent staff get which contractors don’t.

 

After you’ve considered how much you should set your rates at (depending on how much time you’ll be setting aside), you’re then able to work out the amount in salary and dividends needed to cover your annual holiday and sick leave costs.

 

2. Insure yourself to the hilt

Finding the right insurance package can be a Limited Company contractor’s dream. For holiday and sickness pay, you should consider taking out the following two types insurance:

 

Income protection insurance: which replaces your income with a monthly payout should you be unable to work due to an accident, unemployment or ill health

Critical illness cover: will pay you a tax-free lump, during the term of the policy, if you’re diagnosed with a specific illness or medical condition that’s listed within your policy terms and conditions

 

When shopping around for the right package, ensure you deal with insurance specialists who understand the contractor market, your needs and any potential issues you may face.

 

Our accountants here at Intouch Accounting 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.