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.

2014 changes to statutory sick pay

2014 changes to statutory sick pay

One of the lesser known changes in this year’s Budget relates to Statutory Sick Pay (SSP) brought in partly due to the rather bizarre belief that the old system provided no encouragement for an employer to get an employee back into work.

SSP is a legal requirement and is paid to employees for up to 28 weeks at a rate of £87.55 per week if they are off work due to illness.  As an employee of a Limited Company you would be entitled to this, provided you earn at least £111 a week and are classed as an employee (there’s another discussion to be had there around being an employee and therefore being paid National Minimum Wage, but we’ll leave that one for another blog…!)

The SSP payment is taxable, is paid the same as any normal salary, and only starts when the employee has been sick for 4 or more days.  The employer then used to be able to reclaim this via their PAYE scheme as long as the SSP exceeded 13% of the gross NI in the same month (known as the percentage threshold scheme).  No more.

The Government have concluded that the scheme was used by 100,000 employers at a cost of £50 million to the Exchequer, which could be better spent by establishing a state funded “Health and Work Assessment and Advisory Service” that will provide access to independent occupational health experts and support employees retuning to work, after they’ve been off for 4 weeks or more.  What they seem to have missed is that this will really only hit small employers, who could find their overall employment costs increase a great deal if they have staff off sick and then also have to pay temporary staff to cover.

Even if you are entitled to SSP it’s a good idea to get separate protection in place as the amount you’ll receive is not likely to cover your household bills!

For more information please speak to your contractor accountant for guidance.

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.

Sick pay, maternity pay and paternity pay

Sick pay, maternity pay and paternity pay

What can you claim? How long do you have to work for your company before you’re entitled to claim, and what are the alternatives if you’ve not worked long enough?

As a Limited Company contractor, if you fall ill and are unable to work the responsibility lies with you to organise statutory sick pay for yourself through your company. This is also the case if you or your partner becomes pregnant and you want to claim statutory maternity or paternity pay. Your contractor accountant will be able to advise you on this, but it is helpful to be aware of the general rules on what you can claim and for how long.

 

Statutory Sick Pay (SSP)

If you fall ill, as an employee of your Limited Company you can claim up to £85.85 SSP per week. If the condition is serious, the maximum period this is payable is up to 28 weeks. SSP is paid from the company directly to the contractor and the amounts are deducted from the PAYE paid over to HMRC.

To qualify you must earn above the lower weekly earnings limit of £107. Also, there are three ‘waiting days’ before SSP is payable and each day paid must be a Qualifying Day. This means that it must be a day that is normally a business working day for you e.g.  Monday to Friday.

For SSP it does not matter how short a time you have worked for your company. As long as you have done at least some work you can qualify for payment.

SSP is not likely to cover the income you’re used to, so it’s a good idea to also consider separate health or life insurances.  Your contractor accountant will be able to recommend someone you can talk to about such things.

 

Statutory Maternity Pay (SMP)

Statutory Maternity Pay is paid to female employees who have recently given birth or who are about to give birth. To qualify they must worked for the company ‘for at least 26 weeks up to the 15th week before the expected week of childbirth – known as the ‘qualifying week’’.

The rules on SMP state that:

  • The company must ordinarily be given 28 days notice of maternity leave
  • Medical evidence of pregnancy (Form MATB1) must be provided
  • Average weekly earnings (AWE) must be above the lower earnings limits for the relevant period
  • SMP is not payable in any week that the employee does some work

An employee may take up to one year off in the weeks before and after the birth, but not all of this time qualifies for SMP.

An employee can claim up to 39 weeks SMP at the following rates:

  • 90% AWE for the first six weeks
  • 90% AWE or £135.45 per week – whichever is lower – for up to 33 weeks

SMP is regarded as salary and is therefore subject to all relevant taxes.

For small companies it is possible to reclaim 100% of SMP payments in addition to 3% NIC compensation from HMRC.

If a Limited Company contractor does not qualify for SMP, either because they have not worked for the company long enough or because they earn below the lower income threshold, then they may qualify for Maternity Allowance (MA). This pays £136.78 for up to 39 weeks or 90% of your AWE – whichever is lower.

 

Statutory Paternity Pay

Statutory Paternity Pay (SPP) is payable to male employees who are biological or adoptive parents of a newborn and is payable within 8 weeks of the birth or the date the baby is placed with them.

One or two weeks’ paternity leave can be taken with SPP of 90% of AWE or £135.45 – whichever is lower. If you have a contractor accountant ensure that you give them sufficient notice of when you would like SPP payments to commence.

As with SMP, if you are a small company you can claim 100% of SPP payments made in addition to 3% NIC compensation.

 

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.