Holiday Pay During The Redundancy Notice Period In The UK

Making roles redundant is never easy. Alongside consultation, fair selection and timely communications, you’ll also need to get the pay and holiday entitlements right during the redundancy notice period.

Get this wrong and you risk unlawful deductions claims, underpayment disputes or tribunal proceedings. Get it right and you’ll close out employment relationships fairly, compliantly and with minimal disruption to your business.

In this guide, we break down what UK law requires around holiday pay in the redundancy notice period, how to handle accrued but untaken leave, when you can require staff to take leave before leaving, and how to calculate the final payment confidently.

What Does UK Law Require Around Holiday Pay In The Redundancy Notice Period?

There are two key legal frameworks to keep front of mind.

• The Employment Rights Act 1996 (ERA) – sets minimum statutory notice periods, rules about pay during notice, and what happens on termination.
• The Working Time Regulations 1998 (WTR) – create the statutory annual leave entitlement (5.6 weeks for most workers) and the rules for taking and paying holiday.

From an employer perspective, three baseline rules flow from these laws:

• Employees continue to accrue statutory holiday during the redundancy notice period up to the termination date.
• On termination, you must pay for any statutory holiday that has accrued but not been taken. Payment in lieu of statutory holiday is only permitted on termination.
• You can, in many cases, require an employee to take accrued holiday during their notice period, provided you give the correct notice and your contract policies allow it.

On top of the statutory minimum, you may also have contractual holiday rights (for example, extra days above 5.6 weeks). Your Employment Contract and policies will determine whether enhanced or additional leave continues to accrue and how it’s paid out on termination.

If your business offers enhanced redundancy pay or other ex-gratia terms, make sure these are documented and aligned with how you’ll deal with outstanding holiday.

Do Employees Continue To Accrue Holiday During Notice?

Yes – statutory holiday continues to accrue during a redundancy notice period until the employment terminates. That’s the case whether notice is worked or the employee is placed on garden leave.

Key nuances to be aware of:

• Worked notice: Accrual continues as normal up to the termination date.
• Garden leave: Accrual continues, as the employment relationship and pay continue even if the employee is not actively working.
• Pay in lieu of notice (PILON): If your contract allows for PILON and you end employment immediately, accrual stops on the termination date. You must still pay for any accrued but untaken holiday up to that date.
• Family leave or sickness during notice: Statutory holiday continues to accrue during maternity, adoption or shared parental leave and during sickness absence, including if these occur within the notice period.

For part-time or variable-hours staff, accrue holiday based on the average hours worked. For those with irregular pay, the statutory holiday pay calculation uses the rolling 52-week average of paid weeks (skipping any week with no pay).

It’s good practice to keep your holiday accrual assumptions consistent with the Working Time Regulations and any contractual rules you’ve set. If in doubt, clarify your approach in your staff handbook and contracts so expectations are clear.

Can You Ask Staff To Take Holiday During Their Redundancy Notice?

Often, yes – and this can reduce the amount you need to pay out on termination. Under the WTR, you can require employees to take holiday on specified dates by giving notice at least twice the length of the holiday you’re asking them to take. For example, to require one week of leave, give at least two weeks’ notice.

Check the contract and policies too. Many employers include wording that lets the business direct the timing of leave on reasonable notice, which can sit alongside the statutory notice rule. Some agreements add specific rules for leave during notice or garden leave.

Practical tips for directing leave:

• Confirm in writing the dates you require the employee to take as holiday and the amount of notice you’re giving.
• Ensure the employee still has enough holiday left to cover the period you’re directing them to take.
• Be consistent to avoid unfairness or discrimination risks in how you ask different people to use their leave.
• Consider operational impact – it might be better value to keep someone working their notice and pay holiday at the end, especially where handovers are critical.

Remember that bank holidays and business-closure days should be dealt with consistently with your contracts and custom and practice. If bank holidays are part of the employee’s entitlement, you can count them as leave; if they’re in addition to entitlement, treat them accordingly.

If you’re navigating multiple departures at once, it’s sensible to plan this alongside your broader process for ending an employment contract to keep each step clean and compliant.

How To Calculate Holiday Pay At Termination

When employment ends, you must pay for any accrued but untaken holiday up to the termination date. The calculation has two moving parts: the amount of holiday (days/hours) and the holiday pay rate.

1) Work Out The Accrued, Untaken Holiday

Start with the employee’s annual entitlement, split into statutory (5.6 weeks) and any extra contractual days. Pro-rate that entitlement for the portion of the holiday year worked up to the termination date, subtracting any taken leave.

For leavers mid-month, you can pro-rate by days or weeks. Many employers use a monthly accrual method for simplicity, but be consistent and, ideally, set this out in your contract or policy to avoid disputes.

2) Use The Correct Holiday Pay Rate

Statutory holiday pay must reflect “normal remuneration,” not just basic pay. Depending on the pattern of work, this can include:

• Regular overtime that is intrinsically linked to the role (not one-off or occasional)
• Regular commission or productivity payments
• Allowances that are routinely earned

For workers with irregular pay, use the 52-week average of paid weeks immediately preceding the holiday (ignoring any weeks with no pay). For fixed-salary workers, use their normal weekly pay, adjusted for any regular supplements that must be included.

If your team regularly works beyond contracted hours, review your approach to holiday pay in light of case law and ensure your method aligns with your overtime arrangements.

3) Factor In Contractual Enhancements Carefully

Many employers offer holiday above the statutory minimum. You can decide, by contract, whether that additional holiday is paid at basic rate or mirrors the statutory “normal remuneration” approach. Be clear in your wording to avoid inadvertently committing to costly enhancements.

4) Adjust For Overtaken Holiday, If Applicable

If the employee has taken more holiday than they’ve accrued at the termination date, you may be able to recover the excess from their final pay – but only if your contract or policy gives a clear right to make that deduction. Without a contractual right, taking money back risks an unlawful deduction claim.

Where you do have a contractual right, ensure any deduction is reasonable, transparent and reflected on the payslip. This aligns with UK rules on wage deductions.

Common Scenarios And Pitfalls To Watch

Garden Leave Vs PILON

Garden leave keeps employment alive until the end of notice, so holiday accrues and you can still direct some of it to be taken with proper notice. With PILON, employment ends immediately and accrual stops – you then pay out the accrued but untaken balance.

Decide which route best fits the role, risk profile and your contracting position. Make sure your contract allows for PILON and sets out how final pay and holiday will be handled.

Irregular Hours And Variable Pay

For zero-hours and variable-hours staff, calculating holiday pay requires using the rolling 52-week average of paid weeks under the WTR method. If there aren’t 52 paid weeks available, use the number that are. Keep contemporaneous records of hours and pay to support accurate calculations if challenged.

Sickness Or Family Leave During Notice

Holiday continues to accrue during sickness and family leave. Employees can choose to take accrued holiday instead of sickness (for example, to receive higher pay), but you generally can’t force them to do so. If termination happens while they are off, you still need to pay the accrued but untaken balance.

Bank Holidays And Close-Downs

How you treat bank holidays depends on the contract. If bank holidays are included within the 5.6 weeks, they reduce the remaining balance; if they’re in addition, they must be honoured accordingly or paid out on termination if unused. If your business has annual shutdown periods, ensure you give correct notice to require leave, including during a notice period.

Overtaken Holiday And Deductions

Where holiday has been overtaken, only deduct from final pay if you have a clearly drafted contractual right to do so. Keep the deduction limited to the overpayment amount and be mindful of national minimum wage implications if the deduction would reduce pay below the applicable rate for work done.

Contract Wording Matters

A lot of complexity (and cost) around holiday in redundancy can be avoided with clean contractual terms that cover PILON, garden leave, holiday accrual rules, and calculation methods for termination payments. If you’re updating templates, align them with your policies and the practices you actually follow.

Consistency And Discrimination Risks

When requiring staff to take holiday during notice, apply a consistent approach. Avoid targeting individuals unfairly or decisions that could indirectly discriminate (for example, by disadvantaging part-time staff or those with certain protected characteristics). Document your rationale in case it’s later questioned.

Cashflow And Timing

You’ll need to pay the final holiday balance with the final salary payment. Build this into your payroll plan, especially if you’re managing multiple redundancies at once. Staying on top of timelines also helps you meet your general obligations around paying employees on time.

Policies And Process

Alongside contracts, your staff handbook should set out how leave is requested, approved and allocated across the holiday year, what happens on termination, and how the business handles close-downs and bank holidays. Tidy policies make the redundancy process far smoother.

Link Your Holiday Approach To The Wider Redundancy Plan

Holiday is just one moving part in a lawful redundancy process. Make sure your approach to leave dovetails with consultation, selection criteria, notice management and any payments you’re making in addition to statutory minimums. Where you’re designing a more generous package, be clear whether it includes any offset for accrued leave or sits entirely separately from it.

If you’d like experienced support pulling the process together end-to-end, our team can help with practical redundancy advice tailored to your business.

Key Takeaways

• Employees continue to accrue statutory holiday during the redundancy notice period until the termination date (including on garden leave). With PILON, accrual stops when employment ends – you then pay out any accrued balance.
• On termination, you must pay for accrued but untaken statutory holiday. You can only pay in lieu of statutory leave at the point employment ends.
• You can usually require staff to take holiday during notice if you give at least twice as much notice as the leave you’re directing. Check your contracts and policies before doing so, and apply your approach consistently.
• Holiday pay must reflect “normal remuneration” for statutory leave. For irregular-hours workers, use the 52-week average of paid weeks; include regular overtime or commission where required.
• Only recover overtaken holiday from final pay if you have a clear contractual right and you follow UK rules on wage deductions. Keep deductions reasonable and properly itemised.
• Good contract drafting prevents disputes. Ensure your templates cover PILON, garden leave, holiday accrual and payout rules, and align them with your policies for a smooth offboarding process.
• Think holistically. Your holiday strategy should slot neatly into fair consultation, notice management and payments when ending an employment contract. If you offer enhanced redundancy pay, document clearly how it interacts with holiday.

If you’d like help reviewing your contracts, calculating holiday pay, or planning a compliant redundancy process, we’re here to make it simple. Reach us on 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.