What to include in someone's final pay when they leave
Most final-pay disputes are not about the hourly rate. They are about the holiday balance on the leaving date — a number that has to be recalculated for the part-year worked, and almost never matches whatever the last payslip happened to show.
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Key takeaways
- Accrued but untaken statutory holiday must be paid on termination — it is the one leave payment that cannot be lost
- Holiday accrued to the leaving date, not to the end of the leave year, so the balance almost always needs recalculating
- Deductions from final pay need a contractual right or written agreement given in advance — an overpayment is the main exception
- The P45 goes to the employee without delay once the final payroll is run; there is no need to wait for the leave year to end
What final pay has to include
Final pay is not a special category of payment. It is ordinary wages, calculated up to a date that rarely falls neatly at the end of a pay period, plus anything that becomes payable precisely because the employment is ending.
| Element | Included? |
|---|---|
| Hours worked up to the leaving date | Always |
| Accrued but untaken statutory holiday | Always |
| Notice pay, where notice is not worked | Where PILON applies |
| Commission or bonus already earned | Per the contract |
| Overtime and shift premiums worked but not yet paid | Always |
| Statutory notice pay after gross misconduct dismissal | No entitlement |
Accrued but untaken holiday
This is the payment that causes the arguments, and it is worth being precise about why. Statutory holiday cannot be bought out during employment — it exists to be taken as rest. On termination that reverses: whatever has been accrued and not taken is paid, because there is no longer any employment in which to take it.
The calculation, in order
- Take the annual entitlement — 5.6 weeks for a full-time worker, pro-rated for part-time.
- Work out how much of that has been accrued up to the leaving date, not to the end of the leave year.
- Subtract holiday already taken in the current leave year.
- Pay the remainder at the correct holiday-pay rate.
Step two is where most errors sit. Someone leaving four months into a leave year has accrued roughly a third of the annual figure — not the whole thing, and not nothing.
For staff on irregular hours the accrual is normally tracked at 12.07% of hours worked, which makes the leaving balance a function of the hours actually recorded. If those hours live in a spreadsheet that has been edited all year, the balance is a guess. The rate the balance is paid at follows the same rules as any other holiday pay — see how to calculate holiday pay, including the 52-week average where earnings vary.
Bank holidays are a common source of confusion here, because whether they form part of the 5.6 weeks or sit on top of it is a contractual question. Our bank holiday guide covers which arrangement you have and what it means for the balance.
Notice pay and pay in lieu
Where notice is worked, it is simply paid as normal through to the leaving date. Where it is not, paying in lieu requires a contractual right or the employee's agreement — and the notice itself is fixed by service, at one week after a month and one week per complete year up to twelve. The detail, including the gross-misconduct exception, is in notice periods and dismissal.
One point that catches people out: holiday continues to accrue during a worked notice period. A four-week notice period adds four weeks of accrual to the balance you are about to pay, unless the leave is taken during the notice itself.
Deductions: what is lawful
Final pay is where employers are most tempted to settle other scores — unreturned uniforms, training costs, a laptop that has not come back, holiday taken in advance. The rule does not soften because the employment is ending: a deduction from wages needs statutory authority, a clear contractual right, or the worker's prior written agreement.
- Overtaken holiday — deductible only where the contract expressly allows it. Many contracts do; check rather than assume.
- Recovering a genuine overpayment of wages — treated differently from other deductions, but still best handled by agreement.
- Unreturned property or training costs — needs the same written authority, agreed before the deduction is made, not announced with it.
- Withholding pay until something is returned — not lawful, whatever is outstanding.
A deduction can also create a second problem: if it drags the effective hourly rate for the final period below the National Minimum Wage, that is an NMW breach on top of an unlawful deduction, and HMRC treats the two separately.
The P45 and getting the timing right
Once the final payroll is run, the P45 goes to the employee without delay. There is nothing to wait for — not the end of the leave year, not the end of the tax year, not the return of a uniform. A late P45 lands the person on an emergency tax code with their next employer, which is a real cost to them and an entirely avoidable complaint about you.
The records behind the final payment need to outlive the employment as well. Payroll records are kept for three years from the end of the tax year, and National Minimum Wage records for six — set out in how long to keep employee records.
The practical fix for all of this is that the leaving balance should not be reconstructed at the end. Where holiday accrues against clocked and approved hours and sits in holiday management alongside what has been taken, the final figure is already there on the day notice is handed in — and the offboarding checklist makes sure the P45 and access removal are not the steps that get forgotten.
Know the holiday balance before you need it
Holiday accruing against real clocked hours, taken leave in the same place, and a clean export to payroll for the final run.
This guide summarises how UK final pay generally works and is not legal or payroll advice. Entitlements depend on the contract and the circumstances of the departure. Check GOV.UK or Acas, or take advice, before relying on it for an individual calculation. It does not constitute legal, HR, or professional advice and should not be relied on as a substitute for advice specific to your business, workforce, or circumstances.
Final pay questions
- Pay for hours actually worked up to the leaving date, accrued but untaken statutory holiday, notice pay where notice is not worked, and any contractual entitlements such as commission already earned. Anything being deducted has to be lawfully deductible.
- Yes. Accrued but untaken statutory holiday is paid on termination. This is the only situation in which statutory leave can be converted into money — during employment it must be taken as time off, not bought out.
- Work out the entitlement earned up to the leaving date, then subtract what has been taken in the leave year. For someone on 5.6 weeks who leaves a third of the way through the year, that is roughly a third of the annual entitlement — our holiday entitlement guide covers the pro-rata method.
- The same basis as holiday taken during employment: a week’s pay for fixed-hours staff, or the 52-week average for variable pay. See how to calculate holiday pay.