Originally posted by Ditch
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Employment law requires you to have 24 days paid holiday. Obviously this has to come out of your income (same as the employer NI) so they have to deduct it first. Of course you need to ensure that you either take the holiday (paid of course) or get it commuted into salary [there is no obligation to do this].
There are 252 working days in a year - that you are entitled to be paid for. However you are only required to work for 228 of them. To be able to pay you the same rate for all 252 they have to retain 10.17% (I get 10.52%) of the 228 you do work.
There is an argument that says holiday pay can be included in normal wages and no paid holiday given although this position has been weakened by a recent ECJ ruling.
Your expense offset nothing - except expenses you have genuinely incurred. If you are claiming flat rate expenses expect problems sooner or later. You may well not get an enquiry but it you do expect some issues.
A calculation which may help, confuse or depress.
FTE on 40k. Ers NI 4450, Ees NI 3310, Tax 7410, Net 29280
Now, this only actually buys the employer 228 days at a cost of 44450. Thus this is an effective rate of 195 p/day.
somebody going to contract through an umbrella needs 25% "more" to compensate for the bits of their previous salary that were hidden for them (assuming their were no other benefits of any description). This is not a question of anybody ripping anybody off. It's simply how the system works and hides a lot of the cost of employment (everything except salary) from employees.
[Edit: The "commission" payment is probably not subject to holdiday pay rules - these only need to be paid on baic pay as sidknows explains. This is helpful in that it reduces the amount of salary "deferred" as holdiday pay - but does mean you get less when on holiday. Over year it will make no difference to the amount of net received for a given amount of effort input.]
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