When someone hands in their notice, holiday pay is one of the first questions on the list. They're entitled to be paid for any holiday they've built up but not taken. Getting the figure wrong is one of the most common reasons final pay ends up in dispute. The good news is that the sum itself is straightforward once you have four numbers in front of you.
Step 1: work out what they've built up
Holiday builds up through the leave year, so a leaver only gets a share of their full year entitlement. Take the number of days from the start of your leave year to their last day, divide it by the number of days in the year and multiply by their full year entitlement.
Say your leave year runs from 1 January and someone on 28 days leaves on 30 June. That's 181 days out of 365, so they've built up 13.9 days. We always round up to the nearest half day so nobody gets less, which makes it 14 days. If they started part way through the year, count from their start date instead.
Step 2: add carry over and take away what they've had
Add any days they carried over from last year, then take away the holiday they've already taken this year. If they've taken 5.5 days, our leaver above has 8.5 days left. That's the figure you need to pay.
Step 3: turn the days into pay
The law doesn't set one method for a daily rate, so check your contract first in case it says how you do it. If it doesn't, a common and fair approach is a week's pay divided by the number of days they work each week. Someone earning £26,000 a year earns £500 a week, which is £100 a day over five days. So 8.5 days of untaken holiday is worth £850 in their final pay. For hourly paid staff, work in hours instead and round up to the nearest half hour.
If their pay goes up and down with overtime or commission, use their average weekly pay over the last 52 weeks in which they were paid instead. We explain why in does holiday pay include overtime?
What if they've taken too much?
It happens more often than you'd think, especially with people who booked a big summer holiday early in the year. You can only take the overpaid holiday back from final pay if this was agreed in writing beforehand, usually in the contract or staff handbook. If there's nothing in writing, you can't make the deduction, so this is a good moment to check your contracts say it.
Three things that catch employers out
- Gross misconduct doesn't cancel holiday pay. Untaken statutory holiday must still be paid, even if someone is dismissed for gross misconduct.
- You can ask them to use it up. If it suits the business, you can ask a leaver to take their remaining holiday during their notice period, as long as you give them notice of at least twice the length of the holiday.
- Extra holiday follows the contract. Any days you give on top of the legal minimum are paid in line with what the contract says, which can be different from the statutory rules.
Let the calculator do the sums
Our free holiday pay calculator does all of this for you and shows the answer in both hours and money owed, along with exactly how it was worked out. If you only need someone's full entitlement in days, the holiday entitlement calculator has you covered.
If you have a leaver and want a second pair of eyes on their final pay, book your free 30 minute HR chat. It's one less thing for you to worry about.
This article is general guidance rather than legal advice and reflects the law at the date of publication. Sources: GOV.UK: taking holiday before leaving a job and GOV.UK: holiday pay.