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Payment for leave and holidays in final pay

When you leave your employment, you may be entitled to get paid for annual holidays, alternative holidays and/or public holidays in your final pay

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Summer Sizzler Questions

Q1 My employment is finishing just prior to Christmas, am I entitled to be paid for the public holidays over the Christmas/New Year period?

Employees who are leaving their employment for any reason (eg by resignation, retirement, redundancy, dismissal or completion of fixed term) usually get their final wages and holiday pay on their last day of work, but may be paid it in their pay for the final period of their employment.

If you’re an employee and think your final pay is overdue, you should speak to your employer in the first instance.

Public holidays

There is a rule that means employees are sometimes entitled to be paid for public holidays that fall after their employment has ended (ie 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 haven’t become entitled to annual holidays yet.

Read more about annual holiday entitlements.

To work out whether an employee is entitled to paid public holidays that happen after their employment has ended, follow these steps:

  1. 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.
  2. 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.
  3. 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. 

For example: an employee works 5 days a week, Monday to Friday. At their termination date of 22 December (which in this example falls on a Friday eg 2017) they have 5 days remaining of annual holiday entitlement. If these 5 days are added on to their 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 the 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 RDP or ADP (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.

Read more about relevant daily pay and average daily pay.

Alternative holidays

When an employee leaves, they may have unpaid or untaken alternative holidays from when they worked a public holiday. If this is the case, the alternative holidays should be paid at the RDP or ADP (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 have an effect on 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.

Annual holidays

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 the employee has an entitlement to annual holidays

These employees get an annual holiday payment of 8% of their gross earnings. Gross earnings:

  • is calculated from the start of employment, and
  • include any other payments made in the employee’s final pay.

If the employee has taken annual holidays in advance or has been paid for annual holidays on a pay-as-you-go basis, the amount paid is deducted from gross earnings.

Employment ends after the employee has an 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, and
  • the employee also gets an annual holiday payment of 8% of their gross earnings.  Gross earnings:
    • are calculated from the date the employee last became entitled to annual holidays ie since their last anniversary date for annual holidays
    • include other payments made in the final pay.
  • If the employee has taken annual holidays in advance or has been paid for annual holidays on a pay-as-you-go basis, the amount paid is deducted from gross earnings.

The effect of keeping in touch days during parental leave

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 for these employees, 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.

Scenarios

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 comprises:

  • 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 OWE or AWE
  • payment for the two alternative holidays at RDP (or ADP)
  • 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 OWP and AWE
  • payment for his three accrued alternative holidays for working on Friday 16 October at the rate of RDP or ADP (if applicable)
  • an additional day’s payment for Labour Day at RDP or ADP (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.

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