Payment in lieu of holiday

Statutory holiday is paid out when employment ends

An employer cannot normally replace statutory annual leave with money while employment continues. When the worker leaves, any statutory leave they have accrued but not taken must be included in the final balance and paid.

The rule still applies when the employer dismisses someone for gross misconduct. It is separate from payment in lieu of notice, which concerns the notice period rather than unused holiday. The GOV.UK leaver guidance explains the Great Britain position.

Reconcile the whole leave balance

Start with the relevant leave year and the worker's accrued statutory entitlement up to the termination date. Subtract leave already taken and include any carried statutory leave that remains available. Deal with extra contractual leave under the contract.

Use the holiday-pay method that applies to that worker. Do not assume the unused balance and the amount payable are the same kind of calculation.

Deductions need written authority

If a worker has taken more holiday than they accrued, an employer can deduct the excess from final pay only where the contract or another written agreement allows it. Without that authority, making the deduction can create an unlawful-deduction problem.

Give the worker a clear statement of the balance and calculation rather than a single unexplained final-pay adjustment. The linked HollyHR holiday-entitlement calculator can work out accrued leave for a leaver with a supported regular weekly pattern. It does not calculate holiday pay or cover irregular-hours or part-year workers.