Final pay when leaving a job: a UK employer’s guide

Trefnus
2 days ago
14 min read

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Published: 21 August 2026 | Last reviewed: 21 August 2026

Final pay when leaving a job is one of the most common flashpoints between UK employers and departing staff. The last payslip rarely looks like the previous eleven. It may cover a part month, a run of untaken holiday, a notice payment, a redundancy sum, and possibly a deduction or two, with different tax and payroll treatment depending on what each payment represents.

Get it right and someone leaves on good terms. Get it wrong and you risk an unlawful deduction from wages claim, an awkward reference conversation, and a poor exit review that future candidates will read. This guide sets out what UK employers must include in final pay, how holiday and notice are calculated, what can lawfully be deducted, and the payroll steps that follow. It is written for small and medium employers without a dedicated HR function.

Why final pay is different from a normal payslip

Acas points out that a final payslip will often differ from someone’s usual weekly or monthly pay, for reasons including how much holiday they have taken, deductions for training courses, redundancy pay, whether they were required to work their notice, and the fact that they may only have worked part of the pay period.

That is normal. What is not acceptable is leaving the person to guess. Employers should make sure a departing worker understands how the figure was reached, and the payslip should show clearly what each payment and deduction is for. Under the Employment Rights Act 1996 an itemised payslip is a statutory right, and that applies just as much to the final one.

What must be included in final pay when leaving a job

Before payroll is run for a leaver, work through every element that could be owed. A typical final payment includes some or all of the following.

Basic pay for all days actually worked in the final pay period, calculated pro rata.
Payment in lieu of accrued but untaken statutory holiday.
Notice pay, whether worked, spent on garden leave, or paid as a lump sum.
Outstanding overtime, commission, shift premiums and any contractual bonus that has been earned.
Approved business expenses that have not yet been reimbursed. Expenses are generally not treated as wages for the purposes of the statutory deduction rules, so handle any outstanding reimbursement separately from deductions from pay.
Statutory or contractual redundancy pay, where the reason for leaving is redundancy.
Any outstanding statutory payments, such as statutory sick pay or statutory maternity pay, that fall due.

Pension contributions do not automatically apply to every element of final pay. Whether a payment is pensionable depends on the scheme’s definition of pensionable pay and the employer’s automatic enrolment arrangements, not simply on whether it is taxable. Check which elements are pensionable before the final payroll run rather than after it.

Holiday pay on termination

Almost all workers are entitled to 5.6 weeks’ statutory paid holiday a year. When employment ends, Acas is clear that employers must pay workers in lieu for any untaken statutory holiday entitlement they have accrued.

Working out accrued but untaken leave

For a straightforward fixed-hours worker, the calculation depends on how far through the leave year the person leaves. Take their annual entitlement, work out the proportion of the leave year they have completed, then subtract the leave they have already taken. The resulting accrued statutory entitlement is normally paid in lieu when employment ends.

The rate used also matters, not just the number of days. For most workers, at least four weeks of the 5.6-week statutory entitlement must be paid at the normal rate, which can need to reflect elements such as regular overtime and commission rather than basic salary alone, while the remaining 1.6 weeks is generally paid at basic rate. Different rules can apply to irregular hours and part-year workers. Do not assume every worker’s holiday payment is simply their ordinary daily rate.

The arithmetic is simple for someone on fixed hours. It becomes considerably harder for part-time, irregular hours, part-year and term-time staff, where entitlement and the rate of pay both need care. Those are exactly the cases where informal records tend to fall apart, so check the figures before the final payroll run rather than after a query lands.

The record-keeping duty that applies from April 2026

Section 35 of the Employment Rights Act 2025 introduced a new duty into the Working Time Regulations 1998, in force from 6 April 2026. Employers must keep records adequate to show that they have complied with annual leave and holiday pay obligations, and those records must specifically cover payments made in lieu of untaken leave on termination, including leave carried over from a previous year.

Records must be kept for six years from the date they are made. There is no prescribed format: section 35 allows employers to create and keep them in whatever manner and format they reasonably think fit. An employer that fails to comply with the record-keeping duty may be committing an offence and can face a fine.

The Fair Work Agency was established on 7 April 2026, but it did not take on holiday pay enforcement at launch. Government guidance is that enforcement of statutory holiday pay will begin in 2027 and will not start before April 2027. The timing and detailed approach are subject to a government consultation running until 22 September 2026. Until enforcement begins, holiday pay concerns go to Acas or the employment tribunal in the usual way.

The duty is a general one about annual leave and holiday pay records rather than a special obligation attached to each individual leaver. In practice, though, the effect on final pay is the same: the calculation behind a payment for untaken leave now needs to be evidenced, not just performed, and the evidence needs to survive for years after the person has gone.

When someone has taken more holiday than they have accrued

This is common with early-year leavers who front-load their holiday. An employer can recover the overtaken leave from final wages, but only where the person has genuinely taken more holiday than they had built up and the deduction has been agreed in the contract or in writing beforehand. This is sometimes called a payback clause. Without that written agreement, the deduction is unlawful, however reasonable it feels.

Notice pay, PILON and garden leave

Statutory minimum notice

Under section 86 of the Employment Rights Act 1996, an employer must give at least one week’s notice once an employee has completed one month’s continuous employment, increasing by one week for each complete year of continuous employment, up to a maximum of 12 weeks.

An employee must give at least one week’s notice once they have completed one month’s continuous employment, unless their contract requires a longer period.

A contract can improve on these minimums but cannot undercut them. Where the contract says three months and the statutory figure is five weeks, the contractual period applies.

Pay during the notice period

Someone working their notice should normally be paid as usual for the time they work. If the employer asks them not to attend, they may be placed on garden leave and remain employed for the rest of the notice period.

Where someone is on holiday, sick leave or family leave during notice, the amount due can depend on the circumstances and on whether the contractual notice period is longer than the statutory minimum. Benefits, holiday accrual and other contractual entitlements during notice should be checked against the contract rather than assumed.

Payment in lieu of notice

A payment in lieu of notice, or PILON, ends employment immediately and pays out some or all of the notice period as a lump sum. Check the contract first. Where it contains an express PILON provision, the employer can normally rely on it, subject to how that provision is worded. Where it does not, the parties can still agree an immediate termination with payment in lieu. Imposing PILON with neither a contractual nor an agreed basis can amount to a breach of contract and support a wrongful dismissal claim.

On tax, there is a persistent myth worth killing. Since April 2018, the post-employment notice pay (PENP) rules generally treat the amount calculated as relating to an employee's unworked notice period as taxable earnings, whether or not the contract contains a PILON clause. It is subject to income tax and National Insurance through PAYE and cannot be sheltered within the tax-free termination allowance.

If someone leaves without working their notice

Where an employee walks out early, Acas guidance is that the employer only has to pay them for the time they have actually worked, including any money owed for accrued but untaken holiday. If the early exit causes real cost, for example agency cover, the employer may be able to make a deduction where the contract allows it, or pursue a court claim. Withholding pay without a contractual right is not an option, and legal advice is sensible before going down either route.

Redundancy pay and other termination payments

Where the reason for leaving is redundancy, an employee with at least two years’ continuous service qualifies for statutory redundancy pay. The calculation uses age and length of service: half a week’s pay for each complete year worked under 22, one week’s pay for each complete year between 22 and 40, and one and a half weeks’ pay for each complete year aged 41 or over, with service capped at 20 years.

For dismissals taking effect on or after 6 April 2026, weekly pay for this calculation is capped at £751 in Great Britain, giving a maximum statutory payment of £22,530. Northern Ireland has separate limits. The cap that applies depends on when employment ends, not when notice was given. A week’s pay is calculated separately under the statutory rules, generally based on average weekly earnings over the 12 weeks before the day the employee received their redundancy notice. Take care where a redundancy crosses the April rate change.

Redundancy pay is a separate entitlement from notice pay. An employee receives both, not one instead of the other.

On tax, qualifying termination payments are generally free of income tax and employee National Insurance up to a combined £30,000 threshold, not £30,000 for each separate payment. That can include statutory redundancy pay and qualifying enhanced redundancy or compensation payments for loss of office. It does not cover notice pay, holiday pay, arrears of salary or contractual bonuses, which are taxable as earnings in the ordinary way. Where a business is insolvent and cannot meet these payments, employees can apply to the government’s Redundancy Payments Service.

Deductions from final pay: what is lawful

Part II of the Employment Rights Act 1996 governs deductions from wages. A deduction is lawful only where it is required or authorised by statute, permitted by a written term of the contract, or agreed by the worker in writing in advance of the deduction being made. Tax and National Insurance deductions are required by law. Pension contributions sit outside that category and are handled under the workplace pension scheme, the auto-enrolment rules or a salary sacrifice arrangement, depending on how the employer has set things up. Most other recoveries an employer might want to make need a written basis agreed in advance.

Common items employers try to recover from final pay, each of which needs an express written basis, include:

Overtaken annual leave, under a payback clause.
Training course fees, where a written training agreement sets out a clear repayment scale.
Salary overpayments, which have their own statutory treatment but should still be discussed before recovery.
Unreturned equipment such as laptops, phones, tools or uniforms.

Three practical points. First, check that the deduction clause was properly incorporated into the employment terms and made available to the worker before relying on it.

Second, a training cost clawback should be drafted carefully. A clause that operates as a penalty, rather than a legitimate contractual recovery of costs, may not be enforceable. A sliding scale that reduces over time tends to be more defensible than requiring repayment of the full fee regardless of when the employee leaves.

Third, and easily missed, training cost deductions also need to be checked against National Minimum Wage rules. A deduction can take a worker’s pay below the minimum wage for the relevant pay reference period even where the contract clearly permits it, and the rules differ depending on whether the training was mandatory or voluntary. That is a separate compliance question from whether the contractual right to recover exists, and it needs checking on its own terms.

Tax, the P45 and payments made after leaving

When a worker leaves, the employer must give them a P45. This is different from a P60, which is issued to current employees at the end of the tax year. HMRC guidance is that the employer provides parts 1A, 2 and 3 to the employee and reports the leaving date through the Full Payment Submission.

If a further payment falls due after the P45 has been issued, for example a final commission calculation or a late holiday payment, do not issue a second P45. HMRC is explicit on this point. Instead the payment is taxed using code 0T on a week 1 or month 1 basis, or S0T for Scottish taxpayers and C0T for Welsh taxpayers, and reported on the next Full Payment Submission using the original leaving date with the payment after leaving indicator set.

This can be confusing for leavers, because 0T applies no personal allowance and the deduction can look punitive. It is worth explaining in the covering note rather than leaving the person to work it out. The employee’s final tax position is ultimately dealt with through PAYE and HMRC’s normal tax reconciliation processes, so the 0T code can result in more tax being deducted from the payment than they actually owe for the year.

When final pay is due and what to do if it is disputed

There is no statutory rule requiring payment on the last working day. Acas guidance is that a worker should get their final pay on the date they are normally paid. Someone paid at the end of the month who leaves mid-month will usually be paid at the end of that month. If the contract sets a different arrangement, the contract governs.

Where a former employee disputes the figure, the first step is to talk it through and show the calculation. Many disputes evaporate once the holiday and notice arithmetic is set out clearly. If it cannot be resolved, the person can contact Acas, and Acas early conciliation is normally required before an employment tribunal claim can be brought.

The time limit is tight.

For an unlawful deduction from wages claim, the general rule is three months less one day from the date the payment should have been made, subject to the rules that pause the clock during Acas early conciliation and to the tribunal’s limited discretion to extend time. It is short enough that a slow internal response can push a resolvable disagreement into a formal claim.

A final pay checklist for employers

Running the same sequence for every leaver removes most of the risk.

Confirm the leaving date in writing and check it against the contractual notice position.
Pull the leave record and calculate accrued but untaken statutory holiday to the leaving date.
Check whether any leave was taken in advance and whether a written payback clause exists.
Establish whether notice is worked, taken as garden leave, or paid in lieu, and confirm the contractual basis.
Add outstanding overtime, commission, expenses and any redundancy entitlement.
Check every proposed deduction against a written contractual term or a signed agreement.
Issue an itemised final payslip with each element shown separately.
Report the leaver through the Full Payment Submission and issue the P45.
Retain the leave and holiday pay calculation for six years, as the April 2026 duty requires.

Most of the difficulty in that list sits in a single step: knowing precisely how much leave someone had accrued and how much they had taken on the day they left. That answer needs to come from a record, not a recollection.

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A practical way to keep the records

The most reliable way to meet the record-keeping duty is to make accurate leave records part of the normal absence and payroll process, rather than reconstructing them once someone has handed in their notice.

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Frequently asked questions

When should final pay be paid after an employee leaves?

There is no legal requirement to pay a leaver on their last working day. Acas guidance is that final pay should be made on the worker’s normal pay date, so someone who leaves halfway through a month and is normally paid monthly will usually receive their final payment at the end of that month. The contract may set out a different arrangement, and where a payment is calculated after the P45 has been issued it can legitimately fall in a later pay run.

Do employers have to pay for unused holiday when someone leaves?

Yes. Employers must pay workers in lieu of any accrued but untaken statutory holiday entitlement when employment ends. This applies regardless of why the person is leaving, including resignation, redundancy and dismissal. Contractual holiday above the statutory 5.6 weeks is treated differently: whether it is paid out on termination depends on what the contract says, and if the contract is silent the worker may not be entitled to payment for it.

Can an employer deduct money from an employee’s final pay?

Only where the deduction is required by law, authorised by a written term of the employment contract, or agreed by the worker in writing before the deduction is made. Tax, National Insurance and pension contributions are automatic. Recovering overtaken holiday, training costs or the value of unreturned equipment all require an express written basis, and training cost deductions need a separate check against National Minimum Wage rules. Making a deduction without a written basis risks an unlawful deduction from wages claim under the Employment Rights Act 1996.

Is payment in lieu of notice taxable?

Yes. Since April 2018 the post-employment notice pay rules have generally treated the amount relating to the unworked notice period as taxable earnings, whether or not the employment contract contains a PILON clause. It is subject to income tax and National Insurance through PAYE and cannot be sheltered within the combined £30,000 exemption for termination payments. That exemption applies to statutory and enhanced redundancy pay and genuine compensation for loss of office, not to notice or holiday pay.

Does an employee get redundancy pay and notice pay?

Both. Statutory redundancy pay compensates for the loss of the job and is based on age, length of service and a capped weekly pay figure. Notice pay is a separate contractual and statutory entitlement covering the notice period, whether it is worked or paid in lieu. Receiving one does not reduce the other, and accrued holiday is payable on top of both.

What happens if a former employee says their final pay is wrong?

Start by sharing the calculation and checking it against the leave record and contract, since many disputes come down to a holiday figure or a notice date. If it cannot be settled directly, the individual can approach Acas, and Acas early conciliation is normally required before an employment tribunal claim. The general deadline for an unlawful deduction from wages claim is three months less one day from the date the payment should have been made, subject to the rules on early conciliation and extensions of time, so responding promptly matters.

Conclusion

Final pay when leaving a job is not conceptually difficult, but it has a lot of moving parts and very little tolerance for guesswork. Pay for days worked, settle accrued statutory holiday, handle notice according to the contract, add redundancy pay where it is due, and deduct nothing that is not backed by a written term. Then issue an itemised payslip and a P45, and keep the workings.

The April 2026 record-keeping duty has raised the stakes on the holiday element in particular, and Fair Work Agency enforcement of holiday pay is due to follow in 2027. Employers now need to be able to evidence how a termination payment for untaken leave was calculated, years after the event. That is far easier when entitlement, accrual and usage are tracked continuously rather than reconstructed from a spreadsheet and a manager’s memory during someone’s notice period.

If your current leave records would struggle to answer that question, it is worth reviewing how absence is tracked before the next leaver, not after.

Disclaimer

The information in this article is intended for general guidance only and does not constitute professional legal, financial, or regulatory advice. Always consult a qualified professional for advice specific to your circumstances.

Our articles are researched and drafted with the support of AI tools, then checked against primary sources including Acas, GOV.UK, HMRC and legislation.gov.uk before publication.

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