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Payment for leave and holidays in final pay

When you leave your employment, any annual and alternative holidays that haven’t been taken by you are paid in your last pay.

Employees who are leaving their employment for any reason (eg by resignation, retirement, redundancy, dismissal or completion of fixed term) get their final wages and holiday pay in their pay for the final period of their employment (though it can be earlier by agreement, eg on the employee’s last day of work).

If you haven’t got your final pay from your employer and you think it’s overdue, you should discuss it with your employer in the first instance.

Public holidays

At the end of employment, there is a special 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 sometimes happen if the employee has entitled annual holidays at the time their employment ends.

To work out whether this situation applies, you need to consider the theoretical scenario where the employee takes all of their entitled annual holidays immediately after the end of their employment (instead of it being paid out in their final pay). If the public holiday happened within the time frame of this scenario (ie while the employee could have been on annual holidays), then the public holiday must be paid to the employee, as long as:

  • the day of the public holiday would have been a day the employee would otherwise have been working:
    • had it not been a public holiday, and
    • had the employee still been working for the employer.

This special rule doesn’t apply to employees who haven’t completed 12 months' service because they haven’t become entitled to annual holidays yet.

Cory has worked for his employer for 2 years and works Monday to Friday. He finishes work 4 days before a public holiday and has more than 4 days left from his annual holiday entitlement. Cory gets a day’s pay at his relevant daily pay or average daily pay (if applicable) for the public holiday if it’s a day on which he would normally have worked. If Cory only worked 3 days a week, and the public holiday fell on a day he doesn’t usually work, he would not receive any payment for this.

Read more about relevant daily pay and average daily pay.

Alternative holidays

If an employee has alternative holidays from working on a public holiday that haven’t been taken or paid out, and the employee leaves their employment, the days are paid at the relevant daily pay or average daily pay for the last day of the employee’s work, regardless of the rate of pay at the time they accrued.

Alternative holidays don’t extend employment for the calculation of annual holiday pay.

Annual holidays

Any accrued annual holidays that the employee hasn’t taken must be paid out on termination.

The way that these are calculated depends on how long the employee has been working for the employer.

Employment ends before the employee has worked for the employer for
12 months

Because the employee isn’t entitled to annual holidays yet, they’re entitled to a payment for annual holidays of 8% of gross earnings during the employment. The payment for any annual holidays in advance or any amount paid on a paid-as-you-earn basis, is deducted from the final amount.

Employment ends after 12 months

If an employee’s employment ends after 12 months there are two calculations to do to work out their total annual holiday payment entitlement.

  1. For any annual holidays that the employee has become entitled to, the employee gets 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
  2. For annual holidays that the employee isn’t entitled to yet (but have been accruing), the employee gets paid 8% of their gross earnings since the entitlement last came up (ie their 12 month anniversary).

The payment for:

  • any annual holidays taken in advance
  • any amount paid for annual holidays on a paid-as-you-earn basis
  • any annual holidays cashed up,

is not included in the final amount so will need to be deducted, if relevant.

Sick leave and bereavement leave

There is no entitlement to receive payment for unused sick leave or bereavement leave when an employee leaves their employment.

Scenarios

Ted has been employed for one year and one month. He leaves his employment on 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 entitled annual holidays left at the end of his employment. Ted also has two alternative holidays from working on public holidays that he hasn’t taken. Ted is entitled to payment:

  • for the two alternative holidays
  • for the three weeks of annual holidays left (from 12 April) at the greater of average weekly earnings or ordinary weekly pay
  • at 8% of gross earnings for the one month period between 12 April and 12 May. The gross earnings for the 8% calculation include the holiday pay paid to Ted for his three weeks of unused holiday and the value of the two alternative holidays.

Jason finishes work on Friday 16 October. Jason has been paid up to Tuesday 6 October. He has three days’ accrued alternative holidays and is entitled to four weeks’ paid annual holidays. He last became entitled to annual holidays on 25 June.

His final payment is made up of:

  • payment for his work since the last pay period, that is, eight days’ pay for Wednesday 10 October through to Friday 16 October
  • payment for his three accrued alternative holidays at the relevant daily pay rate for working on Friday 16 October or at his average daily pay rate (if applicable)
  • payment of four weeks’ annual holiday pay calculated as per the definitions of 'ordinary weekly pay' and 'average weekly earnings' less any annual leave taken or cashed up
  • an additional day’s payment for Labour Day at relevant daily pay or average daily pay (if applicable), as it falls during the four weeks’ theoretical annual holidays extension added to the end of his employment
  • 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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