How to budget for holiday and sick pay when you’re self-employed

Want (or need) to take a break from work but can’t afford to? Find out how you can budget for holiday and sick pay when you’re self-employed.

There comes a time when everyone needs a break from work. It could be a holiday, that magical time of the year when you pop your out of office on your emails, wave goodbye to your responsibilities and head off on a new adventure. Or maybe you need time off work due to illness.

When you’re in permanent employment you can still earn a full salary while you’re sunning yourself on a beach. And if you’re ill, you can (usually) focus on getting better, knowing that someone will hold the fort until you’re back – and your bills are covered.

So what happens when you’re a freelancer, contractor or small business owner, and there’s no payment safety net when you’re not there to do the job? In this blog Jenny Winslow from Intouch Accounting shares advice on budgeting, to ensure you’re never out of pocket when you’re away from work.

Planning self employed holidays

Booking holidays is one thing us Brits do best. With a world of destinations and possibilities at your fingertips, it’s easy to get carried away in the excitement of planning your adventures.

But while permanent employees only have to consider how they’ll pay for their holiday, the self employed must also factor in their loss of earnings whilst they’re away.

So how can you plan your holidays for minimum impact on your earnings? We advise you to consider your current and future contracts, to see if a natural hiatus occurs. This is the perfect time to take a break, as you’ll feel ready to relax once you’re current contract ends and recharged for when your next contract begins. It will also give you the motivation to have something to look forward to whilst hard at work.

Are you entitled to sick pay?

Sickness and bereavement are sadly a part of life, and are rarely foreseen. For permanent employees they’re able to claim £89.35 per week in Statutory Sick Pick (SSP) for a maximum of 28 weeks. If as a contractor or freelancer you have your own Limited Company, technically as an employee of your company you’re able to also claim the same.

But while it’s comforting to know you’ll have cash coming in (which you can claim the majority back from the Government), it will undoubtedly be much less than what you’re used to when working full-time.

How to budget for holiday and sick pay when you’re self-employed

Everyone needs to take a break sometimes – even freelancers, contractors and small business owners! And whether your break from work is planned, there’s plenty you can to do ensure you don’t return to work in debt. Here are some two ways you can prepare for time off from work.

1) Build up your bounty

When planning your finances for the year, ensure your contracts’ salaries will comfortably cover your outgoings for at least 48 weeks of the year.

This leaves you with four weeks for holidays and potential sickness. If you plan to take longer than this off work, simply adjust the number of week’s salary accordingly. You will also need to factor in the eight bank holidays throughout the year, as this is a paid perk only permanent employees are entitled to.

It’s also worth noting that once you’ve calculated the number of weeks you plan to take off work, you can also start to consider your day rate and whether it will cover you during that time. Speak to your accountant if you’re unsure on how to plan your working weeks and day rate.

2) Insure yourself against the unexpected

Insurance when you’re self employed is never a bad idea. When it comes to sickness cover, we advise considering the following:

  • Income protection insurance: replaces your income with a monthly payout, should you be unable to work due to illness, accident or unemployment.
  • Critical illness cover: if you’re diagnosed with a specific illness or medical condition listed within your illness cover, you’ll receive a tax-free lump sum.

When looking for policies, ensure you deal specifically with providers who specialise in the needs of contractors and freelancers. A lot claim they can help out, but few understand the unique working styles and needs of contractors and freelancers. It’s also worth speaking to any friends who may be in a similar industry for recommendations.

Take time off without worry

With some advance thought and planning you won’t need to worry about your finances, whatever reason you’re away from work.

And if you’re lucky enough to have a sickness free year, you’ll have some left over come Christmas! Surely the perfect time to treat yourself for working so hard throughout the year?

Jenny Winslow works for Intouch Accounting, the expert contractor accountancy firm for Limited Company contractors.