Employees who are leaving their employment must be paid their final wages and holiday pay in their pay for the final period of employment, at the latest. Employers and employees can agree that this will be paid earlier, such as on their last day of work.
The entitlement applies to employees who are leaving for any reason such as resignation, retirement, redundancy, dismissal, or completion of fixed term employment.
If you’re an employee and think your final pay is overdue, speak to your employer in the first instance. If the employer is not responsive, you can use the Early Resolution Service to get it resolved.
Employees are sometimes entitled to be paid for public holidays that fall after their employment has ended (i.e. after their termination date). This can happen if the employee has unused annual holidays they are entitled to at the time their employment ends. This rule doesn’t apply to employees who haven’t completed 12 months' service because they aren't entitled to annual holidays yet.
To work out whether an employee is entitled to paid public holidays that happen after their employment has ended, follow these steps:
- Treat any remaining annual holidays that the employee is entitled to as if the employee had taken them immediately after the date their employment ended.
- The employee must be paid for a public holiday if it:
- happens within the time period created by adding on these remaining annual holidays to the end of employment, and
- happens on a day that the employee would have worked if they were still employed, and the day wasn’t a public holiday.
- If the employee is entitled to be paid for a public holiday then:
- the period that the annual holidays covers is extended by one day for each public holiday the employee is entitled to be paid for, and
- this new extended period may contain more public holidays which also need to be considered for payment.
The payment for any public holidays is calculated in the usual way. They are paid at the rate of relevant daily pay or average daily pay (if applicable) for the day.
Note that this situation has no effect on the actual end date of employment.
Tara works 5 days a week, Monday to Friday. At her termination date of 22 December (which in this example falls on a Friday in 2017) she has 5 days remaining of annual holiday entitlement. If these 5 days are added on to her termination date, this takes them to 29 December. Two public holidays fall within this period (25 and 26 December), so these must be treated and paid as public holidays.
The 2 days’ annual holidays which would have covered 25 and 26 December are then added on to the end of the period (ending on 29 December). This creates an extended period which ends on 2 January. This extended period includes the public holidays 1 and 2 January. These public holidays are also treated and paid as public holidays.
1 and 2 January are now treated as public holidays. This means two annual holiday days are not being used. These two annual holiday days are then added on to the end of the period ending on 2 January, creating a new extended period ending on 4 January. There are no public holidays falling on 3 or 4 January, so this has no further effect.
Cory has worked for his employer for 2 years and works 5 days a week, Monday to Friday. He finishes work 4 days before a public holiday (which falls on a Tuesday), and has 6 days left from his annual holiday entitlement.
Cory gets a day’s pay at his relevant daily pay or average daily pay (if applicable) for the public holiday. This is because if his 6 days' annual holiday entitlement was added on to his termination date, this period would include the public holiday. Tuesday is also a day on which he would otherwise have worked. If Cory only worked Wednesday to Friday, he would not receive any payment for the public holiday.
When an employee leaves, they may have unpaid or untaken alternative holidays from when they worked a public holiday. This means the alternative holidays should be paid at the relevant daily pay or average daily pay (if applicable) for the last day of the employee’s work. This is regardless of the rate of pay at the time they earned them. Alternative holidays don’t affect the employee’s termination date for working out pay for public holidays.
Sick leave and bereavement leave
There is no legal entitlement for unused sick or bereavement leave to be paid out when an employee leaves their employment. Some employers choose to pay out a part or all of any unused sick leave entitlement.
How much an employee gets paid for annual holidays in their final pay depends on how long they have been working for the employer.
Employment ends before entitlement to annual holidays
These employees get an annual holiday payment of 8% of their gross earnings less any amount the employee has been paid for:
- annual holidays taken in advance
- annual holidays on a pay-as-you-go basis.
Gross earnings are calculated since the commencement of employment. They include any other payments made in the employee’s final pay.
Employment ends after entitlement to annual holidays
There are two calculations to do to work out the annual holiday payments for these employees:
- The employee is paid for any remaining annual holidays that they are entitled to. These are paid at the rate of the greater of ordinary weekly pay or average weekly earnings, as if the holidays were being taken at the end of the employment, plus
- The employee gets an annual holiday payment of 8% of their gross earnings since their last anniversary date for annual holidays. This includes other payments made in the final pay, less any amount the employee has been paid for:
- annual holidays taken in advance
- annual holidays on a pay-as-you-go basis.
Parental leave and 'keeping in touch' days
Employees may work on keeping in touch days while they are on parental leave. If they do not return to work at the end of their parental leave, then their gross earnings for calculating annual holiday payments in their final pay does not include their keeping in touch payments. This is because the last day of work for an employee who doesn’t return to work after parental leave is the day before they started their parental leave.
Ted has worked for his employer for one year and one month. His last day of employment is 12 May and the last date he became entitled to annual holidays was 12 April. Ted took a week’s annual holiday in April and so has three weeks of annual holidays entitlement left on 12 May. Ted also has two alternative holidays from working on public holidays that he hasn’t taken. Ted’s final pay is made up of:
- his pay for the period worked since the previous pay period until and including 12 May
- payment for his remaining three weeks of annual holidays entitlement, at the rate of the greater of ordinary weekly earnings or average weekly earnings
- payment for the two alternative holidays at relevant daily pay (or average daily pay)
- payment of the amount of 8% of gross earnings for the period between 12 April and 12 May. Ted's three weeks of unused holiday and the value of the two alternative holidays are included in gross earnings for the 8% calculation.
Jason finishes work on Friday 16 October. Jason has been paid up to Tuesday 6 October. He has three days’ unused alternative holidays and is entitled to four weeks’ paid annual holidays. He last became entitled to annual holidays on 25 June. Jason’s final payment is made up of:
- his pay for the period worked since the previous pay period, (eight days’ pay for Wednesday 10 October through to Friday 16 October)
- payment of four weeks’ annual holiday pay calculated at the rate of the greater of ordinary weekly pay or average weekly earnings
- payment for his three accrued alternative holidays for working on Friday 16 October at the rate of relevant daily pay or average daily pay (if applicable)
- an additional day’s payment for Labour Day at relevant daily pay or average daily pay (if applicable). This is because it falls during the four weeks’ notional annual holidays extension added to the end of his employment to reflect annual holidays entitlement owing.
- 8% of his gross earnings since 25 June.
These gross earnings include:
- the four weeks’ annual holidays paid out
- the payment for the alternative holidays
- the payment for the public holiday.