Leaving a Job: How Holiday Pay Is Calculated on Termination

Regulation 14 of the Working Time Regulations 1998 sets the formula. The amount of leave to which the worker is entitled in respect of the proportion of the leave year up to the termination date, less the leave actually taken, is the pay-out figure (in days). That figure is multiplied by the daily rate to produce the cash sum, which is added to the final wage packet and subject to PAYE and National Insurance.

For a full-time worker (5 days per week, 28 days statutory entitlement) leaving on 31 October in a leave year that runs January to December, the calculation is: 304 days into the year (out of 365) gives a worked fraction of 0.833. 0.833 × 28 days entitlement is 23.33 days accrued. If the worker has taken 14 days during the year, the pay-out is 9.33 days at the daily rate. At £200 per day that is £1,866.

The fraction is calculated by calendar days, not by working days. A worker who joins on 1 February and leaves on 30 June has worked 150 days of a 365-day leave year, a fraction of 0.411. 0.411 × 28 days is 11.51 days of accrued entitlement. The reasoning is that the entitlement accrues continuously across the year, not in blocks. GOV.UK guidance on leaving a job confirms the calendar-day method.

For fixed-salary, fixed-hours workers, the daily rate is the annual salary divided by the contractual working days per year (typically 260 for a 5-day week). A worker on £52,000 per year on a 5-day week has a daily rate of £200. Their accrued holiday pay-out is calculated at this rate.

For workers whose pay varies (commission, regular overtime, shift premia), the rate must reflect normal remuneration, not just basic pay. This was the central point of Bear Scotland v Fulton [2015] IRLR 15 and British Gas Trading v Lock [2016] EWCA Civ 983: holiday pay must include amounts that the worker would normally have earned, not the bare contractual minimum. For a worker whose total annual remuneration averaged £62,000 (£52,000 salary plus £10,000 commission), the daily rate is £238, not £200. Failure to apply this inflates the unpaid wages claim if challenged.

For irregular-hours and part-year workers post 1 April 2024, the rate is calculated via the 52-week reference period: average weekly pay across the 52 weeks preceding the leave (skipping weeks of no pay, looking back up to 104 weeks). For workers on rolled-up holiday pay throughout, the final reconciliation pays out any 12.07% balance that was not delivered period-by-period.

The Regulation 14 pay-out applies identically regardless of the reason for termination. Whether the worker resigns, is made redundant, is dismissed for misconduct, is dismissed for capability, or reaches the end of a fixed-term contract, the accrued-but-unused holiday must be paid out. The single exception is gross misconduct, where the employer may have additional contractual rights, but even there the statutory entitlement under WTR 1998 must be paid out (the EU origin of the right and the absence of any "misconduct forfeit" in the Regulations make it untouchable).

Garden leave and notice periods are different. While the worker is on garden leave or working out notice, they are still employed, still accruing holiday, and the employer can require them to take any outstanding leave during notice. Many employers do exactly this to clear the holiday balance: a 4-week notice period plus a 4-week unused holiday balance becomes 8 weeks of paid time off, with the second 4 weeks designated as holiday. The employer must give twice as much notice as the leave being designated (per Regulation 15).

For redundancy specifically, the holiday pay-out is taxed as wages under PAYE. The statutory redundancy payment (up to the cap of £30,000) is tax-free, but accrued holiday pay is not redundancy and does not benefit from the £30,000 tax-free band. GOV.UK redundancy rights guidance sets out the tax treatment of each element of a redundancy package.

Mistake 1: rounding down to whole days. The accrual calculation often produces a fractional figure like 11.51 days. Some employers round this down to 11 to simplify payroll. Rounding down is unlawful; the worker is owed the exact figure. The correct payroll practice is to pay the fractional day in hours (11.51 days at 8 hours per day is 92.08 hours).

Mistake 2: using basic pay instead of normal pay. Workers on commission, regular overtime, or shift premia are frequently paid out at basic pay only. This is the most litigated holiday pay issue in the UK, with Bear Scotland and British Gas v Lock both reaching the higher courts and establishing that holiday pay must reflect normal remuneration.

Mistake 3: deducting unaccrued holiday without contractual authority. Where the worker has taken more days than they have accrued at termination, the employer can recover the overpayment only if the contract or a separate written agreement gives them the right to do so. Without that clause, any deduction from the final wage is an unlawful deduction of wages.

Mistake 4: failing to pay rolled-up balance. For zero-hours workers on rolled-up pay, the final reconciliation can be missed if the payroll system does not check the 12.07% has actually been delivered every period. The worker should compare total hours worked × 12.07% × hourly rate against total rolled-up pay shown across all payslips. Any shortfall is owed.

Start with a written request to the employer for a breakdown: leave year start and end dates, full entitlement, days taken, days accrued at termination, daily rate used, and total paid. The employer should be able to produce this within a few working days. If they cannot or refuse, that is itself evidence for any subsequent tribunal claim.

If the breakdown shows an underpayment, ask the employer to correct it. If they refuse, contact ACAS on 0300 123 1100 for free advice and early conciliation. The 3-month-less-one-day tribunal clock starts on the date of the final wage and pauses during conciliation, up to a maximum of six weeks of pause.

Underpaid holiday pay on termination is brought as an unlawful deduction of wages claim under section 13 of the Employment Rights Act 1996. The remedy is the unpaid sum plus interest, plus potentially an additional financial penalty against the employer at the tribunal's discretion. Multiple workers leaving a single employer with the same payroll error can join a multiple claim.