When someone leaves your business, there’s a good chance they’ll have some annual leave saved up that they haven’t used yet.
What happens to that untaken holiday leave? Is the amount of holiday pay affected? And how does it differ if they exit voluntarily, get the sack, or get made redundant?
Here’s our short guide to what happens to unused holiday entitlement when an employee leaves their job. (If you’re an employee, this should be useful for you too.)
How holiday pay works when leaving a job
When someone leaves their job, their final pay should usually consist of their last month’s working time, plus any appropriate redundancy pay and leftover holidays.
When they leave the business, their employer has to pay the equivalent amount of days remaining in the leave allowance. So if there’s 3 unused holidays, that means 3 days’ worth of pay. Simple. This is called payment in lieu of holiday.
The opposite applies too, though. If for some reason they’ve taken more holiday than they built up, the business can deduct the appropriate amount of pay from their final pay packet. (This might happen if annual leave isn’t very well organised in the company - and we’ve got just the fix for that.)
The above only applies to statutory holiday entitlement (the legal minimum). A reminder of how statutory annual leave works: in the UK, every full time worker is granted 28 days of annual leave per leave year, which includes the days off they get for bank holidays.
There may well be more than that if the business offers more annual leave entitlement as part of their contract of employment.
Calculating final holiday pay when someone leaves the business
There’s a simple formula to work out how much holiday pay your leaver will get.
It’s (A x B) - C, where:
- A is their holiday entitlement for the full holiday year, in days
- B is the proportion of the year that’s gone by the time of leaving
- C is the number of days’ leave already taken
Let’s say Jeff leaves on the 30th April. He’s been working a regular 9am-5pm five-day working week. He gets the usual statutory 28 days holiday allowance per year, and has used six days’ leave already by the time his notice period ends.
B would be 4/12, or 33%, as a third of the year has passed:
(28 x 0.33) - 6 = 3.24
You might round that up to 3.5. So Jeff gets three and a half days final holiday pay.
Do you pay final holiday pay if you sack an employee?
The simple answer - yes you do. Even if it’s a sacking due to gross misconduct, the law states you must pay for the contractual holiday allowance they're owed.
The date the holiday pay will be calculated up to is the employee termination date. That’s the end of the notice period you give them. If it’s an on-the-spot sacking where you send them home on the day, that’s the day you should calculate it to.
What else affects final holiday pay?
If the worker wants to take holiday leave during their notice period, that shouldn’t be a problem. Treat the notice period as normal working time, and simply deduct the days from the final holiday pay amount. Check out our guide to taking holiday within a notice period for more detailed info.
However, if they decide to leave without giving the correct notice period, that might breach their employment contract. If the contract has any clauses about pay deductions in this case, it’s up to you to implement that.
There’s also the case of sick leave during the notice period. That’s a separate issue, though – employees should have the same sick pay entitlement during this time as they would during normal working weeks.
Redundancy shouldn’t affect final holiday pay either. It should just be added to any other pay you give as part of the redundancy package.
If you’d like more guidance on calculating holiday pay amounts for your employees, check out our holiday entitlement calculator.
Gov.UK is also a really good resource. Their guides for calculating holidays for those working irregular hours can come in handy (or you can read our simple explanations on how to calculate annual leave allowance).