When someone hands in their notice, working out their holiday entitlement when leaving a job is usually the last thing on your mind. But it's one of the most common sources of payroll disputes for small businesses, and getting it wrong can mean an unhappy final week or a repayment demand after someone's already gone.
Here's how to work it out properly — and if you just need the number quickly, our remaining leave calculator does the maths for you.
What the law says about unused holiday on leaving a job
Under the Working Time Regulations 1998, every UK employee is entitled to a minimum of 5.6 weeks of paid annual leave a year, usually 28 days for someone working a standard five day week, including bank holidays.
This entitlement doesn't disappear when someone resigns or is dismissed. If they haven't taken all the leave they've built up by their last day, you're legally required to pay it out as part of their final pay. There's no way around this, and it applies regardless of whether the employee resigned, was made redundant, or was dismissed.
How to calculate holiday pay owed when someone leaves
The basic approach is to work out how much leave they've accrued up to their leaving date, then subtract what they've already taken.
Accrued entitlement is usually calculated on a pro-rata basis. If someone gets 28 days a year and leaves exactly halfway through the leave year, they've accrued 14 days. The formula is:
(Days worked in the leave year ÷ total days in the leave year) x annual entitlement
For example, if your leave year runs January to December and someone leaves at the end of June having worked 181 of the 365 days, and their annual entitlement is 28 days:
181 ÷ 365 x 28 = 13.9 days accrued
If they've taken 10 days so far this year, they're owed payment for the remaining 3.9 days. Round in the employee's favour where the number doesn't divide neatly, most payroll systems will do this automatically.
Payment in lieu is calculated using the employee's normal daily rate of pay, based on their usual working pattern. For mid-year starters, part-time staff, or anyone with carry-forward leave from the previous year, the remaining leave calculator handles the full pro-rata calculation in one go. Our guide to calculating holiday pay covers how to work out the daily rate itself if that's not straightforward for the employee in question.
What if they've taken more holiday than they've accrued
This happens more often than you'd think, especially with staff who front-load their holiday early in the year. If someone leaves having taken more days than they've accrued, you can deduct the value of the excess from their final pay, but only if their contract of employment includes a clause allowing this.
Without that clause in writing, you can ask an employee to repay the difference, but you can't simply take it from their final wages. This is one of those situations where a clear, written leave policy earns its keep, it's much easier to have this conversation when the rules were set out in advance rather than negotiated on the way out the door.
Holiday during the notice period
You're within your rights to require an employee to take outstanding holiday during their notice period, but there are rules around how you do it. You need to give notice of at least twice the length of the leave you want them to take, so if you want them to take five days off, you need to tell them at least ten days before.
You can't cancel leave that's already been approved without reasonable notice either, even during a notice period. If someone has a family holiday booked and approved, changing that at the last minute is likely to cause more problems than it solves.
Keeping clear records makes this straightforward
The calculations above aren't complicated, but they get messy fast if leave records are scattered across spreadsheets, email threads, or someone's memory. Knowing exactly how many days someone has taken this year, and when, is the starting point for every calculation above.
Absently keeps a clear, accurate record of every day booked and taken, so when someone hands in their notice, you're not chasing down old holiday requests to work out where they stand. You'll still need to do the final sums, statutory calculations aren't something any leave tool does automatically, but you'll be doing them with accurate numbers rather than guesswork.
If you're currently working this out from a spreadsheet that hasn't been updated since March, it might be worth seeing how much simpler this gets with proper records in place. Start your free 30-day trial, no credit card needed.