The UK's leading contractor site. Trusted by over 100,000 monthly visitors

Contractor Doctor: Should my umbrella company still pay me when my contract ends?

Dear Contractor Doctor

I’m currently using an umbrella company and I’ve just come to the end of my contract and my pay has stopped as a result. The umbrella company is telling me that I am still an employee, albeit with no hours and no pay.

They did say I can resign if I want to. However, I’m concerned that if I resign, I won’t qualify for Job Seeker’s Allowance (JSA).

Should my umbrella company continue to pay me when my contract ends?



Contractor Doctor says:

“Whether a contractor continues to be paid by their umbrella solutions provider once their contract has finished depends on their contract,” explains Derek Kelly, managing director of professional employment solutions provider Parasol.

“Under certain contracts, it is possible that a contractor should continue to be paid, even when their contract has ended. Furthermore, because the Job Seeker’s Allowance eligibility rules are so complex, it is possible for a contractor to be employed by the umbrella company and still be eligible for benefits.”

What does the contract say?

According to Kelly, a number of factors may result in a contractor being paid when their contract has ended: “The introduction of the Agency Workers Regulations (AWR) in October 2011 brought in changes that mean that any umbrella company contractor working for a compliant umbrella will be on one of two types of contract.”

To comply with AWR, umbrella company contractors must be on either a ‘matched permanent pay’ contract or a ‘pay between assignments contract, also known as a ‘Swedish derogation’ contract.

“Under a Swedish derogation contract, the contractor should receive pay between assignments,” continues Kelly. “As the contractor’s employer, the umbrella company has a legal obligation to pay at least four weeks pay at national minimum wage between assignments.”

Holiday pay – rolled-up or non-rolled-up

If the contractor is on a matched permanent pay contract, and cannot expect pay between assignments, Kelly suggests that the contractor asks about holiday pay.

He explains: “Check whether holiday is ‘rolled-up’ or ‘non-rolled-up’. Rolled-up holiday pay is paid to a contractor during the course of their contract. But non-rolled-up holiday pay is accrued, so is still owed to the contractor.”

Less compliant umbrella companies may hold on to non-rolled-up holiday pay to boost their margins, but legally it belongs to the contractor and, if it is not paid, a contractor should insist on receiving their money.

Overarching employment contracts

“To benefit from claiming expenses, a contractor must also be on an overarching employment contract,” says Kelly. “And for an overarching contract to meet HMRC’s requirements, it must commit to offering a contractor a minimum of 336 hours of work per year at the legal minimum wage.”

Kelly explains that overarching employment contracts arose when all contractors were on zero hour contracts and benefitting from claiming their expenses and offsetting them against income tax and National Insurance contributions (NICs).

The government wised-up to this, saying that if the contract was for zero hours, then each new assignment is a new job; therefore, the contractor’s workplace was not a temporary one, so it would not be possible to claim expenses.

The amount of JSA you can claim depends on how much you have in savings, your income, age, household income, National Insurance Contributions payments and so on

Derek Kelly, Parasol

“The solution was the overarching employment contract, which guarantees that if a contractor has been employed for at least 12 months they will be offered a minimum amount of work at national minimum wage, which HMRC says should be 336 hours,” says Kelly.

He urges contractors at the end of their contracts to check they have been employed by their umbrella company for more than 12 months and that this clause is in their employment contract, then to ask if any of the 336 hours remain unpaid. “If there is no overarching employment contract with a clause providing a contractual right to payments of up to 366 hours, then the umbrella company is not compliant,” he adds.

Employees can still qualify for Job Seeker’s Allowance

Kelly notes that in the same way that employees are eligible for benefits such as statutory sick pay and maternity pay, just because they are employed by their umbrella company does not bar them from being eligible for Job Seeker’s Allowance (JSA).

However, he warns contractors that the rules relating to eligibility are notoriously complex: “The amount of JSA you can claim depends on how much you have in savings, your income, age, household income, National Insurance Contributions payments and so on.

“Under some circumstances, you can be employed and working, but if it is for less than 16 hours per week, you may still be eligible for some JSA. So, a contractor who is employed but not working at all may also qualify.”

In summary, umbrella contractors finding themselves at the end of their contract should ask their solutions provider:

  • Am I on a Swedish Derogation contract? If so, I am eligible for four week’s pay between assignments
  • Am I owed any holiday pay?
  • Am I on an overarching employment contract, and am I owed any hours out of the 336 hour total specified in my contract?

Kelly concludes: “Once the contractor has exhausted the contractual route, they should visit the website or visit their Job Centre to confirm their eligibility for benefits.”

Published: 16 July 2013

Request a call back and SG Contractor Accounting will be in touch

SG Accounting are our chosen partner for providing a specialist accounting service to contractors. SG Accounting

© 2024 All rights reserved. Reproduction in whole or in part without permission is prohibited. Please see our copyright notice.