An employee handing in their notice is never something an employer wants, especially if it is unexpected. However when an employee does give their notice, it triggers a number of things that you as an employer need to do to be transparent with the employee and what they are entitled to during this time. One such concern for employees and employers alike is taking annual leave in their notice period and their entitlement to holiday now they will be leaving their job.
Taking annual leave in notice period
During their notice period an employee is able to take whatever is left of their statutory annual leave. How much holiday they get is dependent on how much of the holiday year has passed as they need to have accrued the holiday to be entitled to it. Their holiday entitlement begins to accrue from their first day of employment and accrues monthly in proportion to their annual leave entitlement.
For example if your holiday year runs from January to December and the employee leaves in April they will have accrued 4/12ths of their holiday entitlement. Based on an annual leave allowance of 25 days (the average annual leave allowance for UK workers according to research from breatheHR) this means they are entitled to have taken 8.3 recurring days of holiday.
If the employee hasn’t yet taken their full annual leave entitlement then they are able to do so during their notice period if they so wish. The employer can only refuse this request for annual leave for valid business reasons, anything else could be seen as discriminatory.
Equally, the employer has the right to ensure the employee uses up their annual leave in notice period. The Working Time Regulations allows employers to specify the dates on which an employee must take some, or all, of their annual leave. In order to do this, the employer must give the employee notice, which should be at least double the number of leave days they want the employee to take. For example, if they have 4 statutory holiday days remaining the employer must give the employee at least 8 days notice.
Taking more leave than has been accrued
If the employee has taken more leave than they are entitled to in the current holiday year, their employer can make a deduction from their final pay which must be equivalent to the additional leave days taken. However this must be agreed beforehand by the employee and put in writing. The rules surrounding this should be outlined in an employment contract or handbook.
Payment in lieu of holiday in notice period
If the employee doesn’t wish to use up their remaining annual leave entitlement in their notice period, or it isn’t possible for whatever reason to do so, then the employer must provide payment in lieu for any holiday days that have been accrued but not taken upon the termination of the employment.
Calculating holiday pay on termination of employment
When an employee hands in their notice they are still entitled to receive pay for any statutory leave they have accrued in the current leave year but have not taken. You can calculate the payment that is due using the formula (A x B) - C, where:
- A is the total number of holiday entitlement for the year
- B is the fraction of the year to the date of leaving
- C is the amount of holiday already taken
For example, where an employee works 5 days a week and is entitled to 5.6 weeks’ paid annual leave. They leave 4 months into the year having taken 9 days of annual leave which is the equivalent of 1.8 weeks (9 divided by 5).
Applying the formula above: 5.6 x (4 divided by 12) - 1.8 = 0.067 weeks’ leave to be paid in lieu.
Please note that, if you need to it is recommended that this number is rounded up to prevent underpayment.