Untaken holiday has to be paid out
Regulation 14 of the Working Time Regulations 1998 requires an employer to pay for statutory leave accrued and not taken when employment ends. It is the only situation where holiday can lawfully be paid instead of taken, and it applies however the employment ended: resignation, dismissal, redundancy, end of a fixed term.
The sum is the entitlement accrued to the last day, less what was already taken, at a day's pay. Getting it wrong in the employer's favour is an unlawful deduction from wages, and it is one of the more common things a tribunal sees because the final pay run is rushed.
The last day is the end of notice, not the last day at work
Leave keeps accruing through the notice period, including notice that is paid but not worked. Somebody who walks out on 31 July with a month's notice paid is employed until 31 August, and accrues to that date. Using the last day at the desk shortchanges nearly every leaver by a chunk of a day.
Round up, never down
Regulation 14 requires the accrued figure to be rounded up to the nearest half day on termination. That is not a convention, it is the rule, and there is no reciprocal rounding down. A payroll set to "nearest half day" is quietly wrong about half the time.
Overtaken leave is a different problem
Somebody who took three weeks in February and left in April has had more leave than they accrued. The instinct is to take it off the final payslip. That is only lawful with a relevant written agreement already in place, under section 13 of the Employment Rights Act 1996.
Without one, the deduction is unlawful even though the leave genuinely was overtaken. A vague clause about recovering "any sums owed" is generally not specific enough. The agreement needs to cover overtaken holiday, and it needs to have existed before the deduction was made rather than being produced afterwards.
Only statutory leave is governed this way. Contractual leave over the 5.6 weeks is whatever the contract says it is, so a contract can decline to pay it out on leaving. It has to say so.
What counts as a day's pay
For someone on fixed pay it is a normal day's pay: annual salary divided by the working days in the year, or weekly pay divided by days worked a week.
For anyone whose pay varies, whether through commission, shift premiums, regular overtime or irregular hours, it is averaged over the last 52 paid weeks. Weeks with no pay are skipped and you look further back, up to 104 weeks. Averaging over the last 52 calendar weeks including unpaid ones is a common way holiday pay ends up wrong.
Regular overtime, commission and shift allowances count towards holiday pay for the four weeks under regulation 13. That comes from Bear Scotland and the line of cases after it, and it is not optional.
Payment in lieu is taxable
Holiday paid out on leaving is ordinary earnings. It goes through PAYE with income tax and National Insurance in the normal way, and it is not covered by the £30,000 termination payment exemption. That exemption is for compensation, and accrued holiday is pay.
Nothing here is legal advice, and a contract can always be more generous than the statutory minimum. Where a page cites a regulation it names it so you can check it.
A leaver calculation says somebody is going
Dates, rates and figures stay on the page and are discarded when you close the tab. There is no account and nothing is uploaded.
Common questions
Does untaken holiday have to be paid when someone leaves?
Yes. Regulation 14 of the Working Time Regulations 1998 requires an employer to pay for statutory leave accrued but not taken when employment ends, whatever the reason: resignation, dismissal, redundancy, or the end of a fixed term.
Is the last day of employment the same as the last day at work?
No. Leave keeps accruing through the whole notice period, including notice that is paid but not worked. Somebody who walks out on 31 July with a month of notice paid is employed until 31 August, and accrues holiday to that date.
Should the final holiday figure be rounded up or down?
Up. Regulation 14 requires the accrued figure to be rounded up to the nearest half day on termination. There is no reciprocal rounding down.
Can an employer deduct holiday someone took before it was accrued?
Only with a relevant written agreement already in place before the deduction is made, under section 13 of the Employment Rights Act 1996. Without one, the deduction is unlawful even though the leave genuinely was overtaken.
How is a day of pay worked out for someone on variable pay?
It is averaged over the last 52 paid weeks, skipping weeks with no pay and looking back up to 104 weeks, the same method used for regular holiday pay. Regular overtime, commission and shift allowances count towards it.
Is holiday paid out on leaving taxed?
Yes, as ordinary earnings through PAYE with income tax and National Insurance in the normal way. It is not covered by the £30,000 termination payment exemption, because that exemption is for compensation and accrued holiday is pay.