When an employee leaves your UK business, you must calculate and pay any accrued but untaken holiday in their final pay packet, based on their average weekly earnings.

Key Takeaways

  • Accrued but untaken holiday must be paid on termination
  • Calculation uses average weekly earnings over 52 weeks
  • Payment should be made with final wages
  • Clear records prevent disputes
  • Employment contracts may specify enhanced terms

What Is Final Holiday Pay

Definition

  • Accrued leave - holiday earned but not taken
  • Payment in lieu - monetary compensation for untaken leave
  • Final wages - included with last paycheck
  • Statutory requirement - must be paid

When It Applies

  • Resignation - employee leaves voluntarily
  • Dismissal - employer terminates employment
  • Redundancy - position eliminated
  • End of contract - fixed-term ends

Calculation Method

Step 1: Determine Total Entitlement

  • Statutory entitlement - 5.6 weeks (28 days for 5-day week)
  • Contractual entitlement - any additional leave
  • Part-year calculation - if leaving mid-year

Step 2: Calculate Leave Taken

  • Leave taken this year - all days used
  • Bank holidays taken - included in calculation
  • Sick leave - separate calculation if applicable

Step 3: Calculate Accrued Leave

  • Total entitlement - minus leave taken
  • Pro-rata adjustment - if leaving mid-year
  • Carry-over - any leave carried from previous year

Step 4: Calculate Payment

  • Average weekly earnings - over 52 weeks
  • Daily rate - average weekly ÷ working days per week
  • Payment - accrued days × daily rate

Example Calculation

Scenario

  • Employment period: January to December (full year)
  • Annual entitlement: 28 days
  • Leave taken: 15 days
  • Termination date: 30 September
  • Average weekly earnings: £500

Calculation

  1. Pro-rata entitlement: (9 months ÷ 12 months) × 28 = 21 days
  2. Leave taken: 15 days
  3. Accrued leave: 21 - 15 = 6 days
  4. Daily rate: £500 ÷ 5 = £100
  5. Final holiday pay: 6 × £100 = £600

Employment Rights Act 1996

  • Section 13 - payment for accrued leave
  • Calculation - based on average weekly earnings
  • Timing - payment with final wages
  • Contract terms - may enhance statutory entitlement

Working Time Regulations 1998

  • Regulation 14 - payment for annual leave
  • 52-week reference period - for average calculation
  • Statutory minimum - must be met or exceeded
  • Contract terms - can enhance above statutory

Payment Timing

When to Pay

  • Final paycheck - include with last wages
  • Due date - on or before termination date
  • Late payment - may result in claims
  • Interest - may be owed on late payments

What to Include

  • Accrued holiday pay - for untaken leave
  • Notice pay - if applicable
  • Redundancy pay - if applicable
  • Other entitlements - commission, bonus, etc.

Common Issues

Issue Solution
Incorrect calculation Recalculate using 52-week average
Missing payment Pay immediately with explanation
Disputed entitlement Check contract and policy
Late payment Pay with interest if delayed
Incorrect reference period Use correct 52-week period

Special Circumstances

Leavers Mid-Year

  • Pro-rata calculation - fraction of year worked
  • Accrual rate - 12.07% of hours worked
  • Leave taken - subtract from entitlement
  • Payment - for remaining balance

Employees on Notice

  • Continue to accrue - during notice period
  • Can take leave - during notice if agreed
  • Final calculation - include notice period accrual
  • Payment in lieu - if leave not taken

Garden Leave

  • Holiday accrues - during garden leave
  • Can take leave - if agreed with employer
  • Payment - normal pay continues
  • Final calculation - include garden leave period

Documentation

What to Record

  • Total entitlement - statutory and contractual
  • Leave taken - dates and duration
  • Accrued leave - calculated balance
  • Payment calculation - how amount was determined
  • Employee acknowledgment - confirmation of payment

Record Retention

  • Final pay records - for 6 years (limitation period)
  • Employment records - for duration of employment
  • Contract terms - for reference
  • Calculation method - documented for audit

Managing Final Holiday Pay

For HR Teams

  1. Calculate early - before termination date
  2. Verify accuracy - check against records
  3. Include in final pay - ensure payment is made
  4. Provide statement - itemized pay details
  5. Retain records - for future reference

For Managers

  • Communicate clearly - explain calculation to employee
  • Handle queries - respond to questions
  • Document discussions - record any disputes
  • Escalate issues - involve HR if needed
  • Support employee - through transition

Leave Management for Final Pay

Effective management requires:

  • Accurate records - complete leave history
  • Clear calculation - transparent methodology
  • Timely payment - with final wages
  • Documentation - retain records for reference
  • Employee communication - explain calculation clearly

Compliance Checklist

  • Total entitlement calculated correctly
  • Leave taken recorded accurately
  • Accrued leave calculated properly
  • Payment included in final pay
  • Statement provided to employee
  • Records retained for 6 years
  • Contract terms honored
  • Any disputes documented
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