Holiday pay on termination of employment
When your workers leave a job – even if you have dismissed them without notice for gross misconduct – they must receive pay for any statutory leave they are entitled to in the current leave year but have not taken.
This entitlement is not subject to a minimum period of employment.
Formula to calculate pay due to workers who resign
You can work out the pay due using the simple formula (A x B) – C, where:
- A is the total holiday entitlement for the year
- B is the fraction of the year to the date of leaving
- C is the amount of holiday already taken
For example, a part-time worker works three days per week. Like all workers, they are entitled to 5.6 weeks’ paid annual leave.
They leave a job seven months into the leave year having taken eight days off. This is the equivalent of 2.66 weeks (8 ÷ 3).
Applying the formula above: 5.6 x (7 ÷ 12) – 2.66 = 0.61 weeks’ leave to be paid in lieu.
Note that, if you need to, you should round this figure up to prevent underpayment.
If you pay a worker on a daily basis, you can also work out their outstanding holiday entitlement in days.
For example, a worker working five days per week is entitled to 5.6 weeks per year, the equivalent of 28 days (5.6 x 5).
They leave a job three months into the year having taken four days off.
Applying the formula above: 28 x (3 ÷ 12) – 4 = 3 days’ leave to be paid in lieu.
Note that, if you need to, you should round this figure up to prevent underpayment.
You need to get the worker’s signed agreement to make a deduction from the final payment to them for any leave taken in excess of their entitlement.
Calculate pay when workers fail to give the correct period of notice
Holiday pay would usually sit separately from notice entitlement and would be earned up to the date the worker leaves your employment.
However, if a worker leaves employment without giving the correct period of notice, they could be in breach of their employment contract if the contract contains a clause stating what will happen if this occurs eg deductions will be made from earned pay.
Calculating leave pay due to workers who you dismiss
If you dismiss a worker, they have the right to be paid for leave accrued during their period of employment, no matter how short it was.
In order to work out B when using the formula above, you need to know the worker’s termination date.
If you dismiss a worker with notice, the termination date is the date the notice period expires.
If you dismiss a worker without notice, the termination date is the date you summarily dismissed the worker.
An employee’s written statement of employment particulars should contain information to enable them to calculate their entitlement to accrued holiday pay when they leave.
Taking annual leave during the notice period
A worker may wish to take some or all of their outstanding annual leave as part of their notice period. This should be treated the same as for any other holiday request – taking into account your usual procedure for authorising annual leave. Read more on taking holiday – notice periods, restrictions and sickness.
You can also insist by giving appropriate notice or because it is clearly expressed in the contract of employment, that a worker takes any holiday owed to them as part of their notice period.
If a worker takes part of their paid leave entitlement during their notice period, you may reduce their notice pay by the amount of holiday pay, provided it is in respect of the same leave year.
