Taking time off should be exciting, not stressful. Yet for many contractors, a holiday can feel like a financial headache, not because of taking time away from work, but because of the impact on income while they’re away. That’s why we make sure every contractor gets holiday pay. What matters most is how you choose to go about it.
Here at ARCH Finance, we offer two options: Advanced Holiday Pay and Retained Holiday Pay. Both are designed to give you control and peace of mind, but they work very differently. Choosing the right one can make a big difference to your cash flow and how you plan your time off. What’s right for one contractor may not be what’s right for another.
Advanced Holiday Pay
Advanced Holiday Pay means your holiday pay is included in your weekly take-home pay. Each week, 12.07% of your gross pay is added to your pay check, giving you a slightly higher amount every time you get paid. This option is ideal if:
- You prefer to maximise your weekly income.
- You want to manage your own savings for holidays.
- You are working a shorter-term contract and may not plan to take time off.
When you first register with ARCH Finance, you’ll receive a document called the assignment schedule. The very first question asks which holiday pay option you’d like to choose. If you want Advanced Holiday Pay, simply tick the “Advanced” box. From then on, it’s automatic- there’s no extra steps needed later down the line, no separate requests to make. You’ll get your holiday pay every week as part of your normal income and you’ll see it clearly displayed on your payslip, available on the ARCH Finance portal.
Retained Holiday Pay
Retained Holiday Pay works differently. Instead of paying your holiday pay weekly, we hold back 12.07% of your gross pay and save it in a dedicated “holiday pot.” When you want to take time off, you can request the money you’ve built up. Either all of it or the lump sum. In effect, you’re paying yourself for that time off- a great way to maintain your income even when you’re not working.
This option is best for contractors who:
- Are on longer-term assignments.
- Plan on taking regular holidays.
- Prefer to have a ready-made holiday fund waiting for them.
When it’s time for you to use your holiday pay, simply log into your online portal, head to the Holiday Request section, and choose how much you’d like to withdraw. If you’re not sure what amount to request, or how much you have accrued, our payroll team is always available to advise you. When you receive your assignment schedule, simply tick the ‘retained’ box in the holiday choice section. Once you do, we’ll automatically set up your holiday pot and set aside funds each week. While retained holiday can be a great option, the majority of our contractors choose to go with our advanced option as it’s the most flexible option, with a higher take home pay, but it really comes down to your individual preference.
Is Holiday Pay Taxed?
In short, yes holiday pay is taxed. With advanced holiday pay, the weekly holiday pay amount is added on to your gross pay then that full amount is taxed as normal. With retained holiday pay its taxed as normal when its released to you.
Advanced vs. Retained – Which Should You Choose?
Both options have their benefits – it just depends on your priorities. Here’s a quick comparison:
Feature Advanced Holiday Pay Retained Holiday Pay
When you get it Included in your weekly pay Paid when you request it
Best for Maximising weekly take-home pay Covering income during holidays
Flexibility You manage your own holiday budget Your holiday fund is set aside
Take Control of Your Time Off
Taking breaks is vital for your well-being and productivity. Whether you like the control of receiving your holiday pay weekly or the security of having funds saved up for when you take time off, you’ll always have holiday pay with ARCH Finance. Both options have their benefits, it just comes down to what is right for you and your lifestyle.
If you’d like more information, or help deciding which option is right for you, get in touch with our team- we’re here to make sure your holiday pay works exactly the way you want it to.
Call 01772 956500
Email: signup@archfinance.co.uk
