When employment ends, holiday entitlement needs to be settled - either through payment or deduction.
The Basic Rule
Statutory Right
When you leave employment:
| Situation | Outcome |
|---|
| Untaken holiday | Must be paid |
| Accrued to leave date | Calculated pro-rata |
| Statutory entitlement | Protected by law |
Payment in Lieu
You cannot take holiday after notice period ends, so:
- Accrued but untaken leave
- Is paid as money
- In your final pay
Calculating Accrued Holiday
The Formula
Accrued holiday = (Annual entitlement ÷ 12) × Months worked in holiday year
Step by Step
| Step | Action |
|---|
| 1 | Find annual entitlement (e.g., 28 days) |
| 2 | Calculate monthly accrual (28 ÷ 12 = 2.33) |
| 3 | Count complete months in holiday year |
| 4 | Multiply (months × 2.33) |
| 5 | Add for part months if applicable |
Example
Leaving 31 July, holiday year Jan-Dec, 28 days entitlement:
| Calculation | Result |
|---|
| Months worked | 7 (Jan-Jul) |
| Accrued | 7 × 2.33 = 16.33 days |
| Already taken | 12 days |
| Owed | 4.33 days |
Payment Calculation
Daily Rate
| Method | Calculation |
|---|
| Annual salary | ÷ 260 (working days) |
| Or | ÷ 52 ÷ 5 |
| Weekly pay | ÷ 5 |
What's Included
| Include | Exclude |
|---|
| Basic salary | Expenses |
| Regular overtime | One-off payments |
| Commission (regular) | Benefits in kind |
| Allowances (regular) | |
Example Payment
4.33 days owed, daily rate £150:
| Calculation | Result |
|---|
| Days × Rate | 4.33 × £150 |
| Payment | £649.50 (gross) |
If You've Taken Too Much
When This Happens
If you've used more holiday than accrued:
| Holiday year | Jan-Dec |
| Leave date | 31 March |
| Accrued | 3 months = 7 days |
| Taken | 14 days |
| Overtaken | 7 days |
Can Employer Deduct?
| Contract Clause | Outcome |
|---|
| Deduction clause exists | Can deduct |
| No clause | May not be able to deduct |
| Agreement | Can agree repayment |
Typical Contract Clause
"If on termination you have taken more annual leave than your accrued entitlement, the Company may deduct the excess from your final salary."
Deduction Rules
Legal Requirements
Even with a clause:
| Rule | Requirement |
|---|
| Written authorisation | Contract must permit |
| No below NMW | Final pay can't go below minimum |
| Reasonable | Not excessive |
Calculating Deduction
Same method as payment:
| Step | Action |
|---|
| Calculate accrued | Days entitled to |
| Calculate taken | Days used |
| Find difference | Overtaken amount |
| Apply daily rate | Deduction amount |
Limits
| Limit | Detail |
|---|
| Cannot reduce below NMW | For hours worked |
| Must have contractual basis | Written agreement |
| Can spread over final pay | If needed |
Notice Period Considerations
Holiday During Notice
| Option | Outcome |
|---|
| Take holiday | Reduces untaken balance |
| Employer requires holiday | Can do with proper notice |
| Work notice | Untaken paid at end |
Employer's Rights
Employer can:
| Action | Requirement |
|---|
| Require you to take holiday | Give twice the notice (e.g., 2 days notice for 1 day holiday) |
| Pay in lieu | For statutory minimum |
Different Types of Leave
Statutory vs Contractual
| Type | On Leaving |
|---|
| Statutory 28 days | Must be paid if untaken |
| Contractual extra | Per contract terms |
Contractual Restrictions
Some contracts say:
- Extra leave forfeited on resignation
- Pro-rata reduction on dismissal
- Check your specific terms
Specific Situations
Instant Dismissal
If dismissed for gross misconduct:
| Element | Position |
|---|
| Accrued holiday | Still owed |
| No notice pay | But holiday is separate |
| Calculate to dismissal date | Not including notice |
Resignation
| Step | Action |
|---|
| Give notice | Proper notice period |
| Calculate accrual | To end of employment |
| Settle up | In final pay |
Redundancy
| Element | Treatment |
|---|
| Redundancy pay | Separate from holiday |
| Holiday pay | On top of redundancy |
| Calculate as normal | To termination date |
Settlement Agreements
If negotiating exit:
| Consider | Action |
|---|
| Include holiday | In agreement |
| Agree amount | Before signing |
| Check calculations | Verify accuracy |
Final Pay
What Should Be Included
| Element | Inclusion |
|---|
| Salary to leave date | Yes |
| Holiday pay in lieu | Yes |
| Outstanding expenses | Yes |
| Bonus (if due) | Per terms |
| Commission | If earned |
Timing
| Standard | Detail |
|---|
| Normal pay date | Usually |
| May be slightly delayed | For calculations |
| Should not be unreasonably delayed | Chase if so |
If There's a Dispute
Common Disputes
| Issue | Response |
|---|
| Wrong calculation | Check and challenge |
| No payment | Request in writing |
| Excessive deduction | Challenge basis |
| No contractual basis | Refuse deduction |
Steps to Take
| Step | Action |
|---|
| Calculate yourself | Know what you're owed |
| Request breakdown | From employer |
| Challenge errors | In writing |
| ACAS | If not resolved |
| Tribunal | Unlawful deduction claim |
Time Limits
| Claim | Deadline |
|---|
| Unlawful deduction | 3 months from non-payment |
| Multiple deductions | Can extend series |
Practical Tips
Before Leaving
| Action | Why |
|---|
| Check accrued holiday | Know your balance |
| Understand deduction clause | Know if overtaken |
| Plan holiday in notice | Take what you can |
| Get final payslip | Keep for records |
Documentation
Keep:
- Holiday records
- Calculation of accrual
- Final payslip
- Any correspondence
- Contract terms
Special Calculations
Part-Year Employment
| Scenario | Calculation |
|---|
| Started mid-year | Accrual from start date |
| Leaving mid-year | Accrual to leave date |
| Short service | Pro-rata applies |
Part-Time Workers
| Apply | Method |
|---|
| Pro-rata entitlement | Based on hours/days |
| Same calculation | For leavers |
| Check hours vs days | Which is used |