Multiply the employee's annual entitlement by the proportion of the leave year they worked, then deduct what they have already taken. The simplest formula is annual days × (months worked ÷ 12) − days already taken. The result is the leaver entitlement, which must be paid in lieu under regulation 14 of the Working Time Regulations 1998. Round up to the nearest half day.
The legal basis: regulation 14
Holiday on termination is governed by regulation 14 of the Working Time Regulations 1998. The rule is simple: when an employee leaves, the employer must pay them in lieu of any statutory holiday entitlement they have accrued but not taken in the current leave year.
The accrual is proportionate. If someone has worked half the leave year, they have built up half the year's entitlement. If they have already taken some, you subtract that from the accrued figure.
Whatever method an employer uses to calculate leave during employment, the final figure on termination must not fall below the statutory minimum (5.6 weeks pro-rated). If it does, the employee can bring an unlawful deduction of wages claim under section 13 of the Employment Rights Act 1996.
The two calculation methods
There are two methods UK employers use. Both are acceptable provided the result meets the statutory minimum.
Method 1: months worked
This is the simpler method and is what most SMEs use. Multiply the annual entitlement by the number of full months worked in the leave year, divided by 12.
Then deduct any days already taken. Add any validly carried-over days from a previous leave year.
Method 2: calendar days
The calendar days method is more precise because it counts every day the employee was actually employed in the leave year. Use this when start or end dates fall mid-month or when the employee started during the year.
This is also what the GOV.UK calculator uses internally. For most SMEs, the results from both methods are within a day or two of each other. If you ever face a tribunal, the calendar days method is the more defensible approach because it tracks the regulation 14 wording most closely.
Worked examples
Four scenarios that cover the most common leaver situations. Each uses the months method first, with calendar days shown alongside for comparison.
Example 1: full-time, half a year
Sarah works 5 days a week with a 28-day allowance. Leave year runs January to December. She joined the company in 2024 and is leaving on 30 June 2026, so she has worked 6 months of the current leave year. She has already taken 8 days off.
- Accrued: 28 × (6 ÷ 12) = 14 days
- Already taken: 8 days
- Owed: 14 − 8 = 6 days paid in lieu
Example 2: part-time, mid-year leaver
Marcus works 3 days a week with an annual allowance of 16.8 days (3 × 5.6). He joins on 1 May 2026 and leaves on 30 September 2026 (5 months). He has taken 4 days off.
- Accrued: 16.8 × (5 ÷ 12) = 7 days
- Already taken: 4 days
- Owed: 7 − 4 = 3 days paid in lieu
Example 3: full-time, leaves at year end
Priya works 5 days a week, 28-day allowance. She is leaving on 31 December 2026 with 22 days already taken.
- Accrued: full year, so 28 days
- Already taken: 22 days
- Owed: 28 − 22 = 6 days paid in lieu
Example 4: employee took more than they accrued
Tom works 5 days a week, 28-day allowance. He joins on 1 January 2026 and leaves on 30 April 2026 (4 months). His manager approved 14 days off in March before he handed in notice.
- Accrued: 28 × (4 ÷ 12) = 9.33 days (rounded to 9.5)
- Already taken: 14 days
- Overage: 14 − 9.5 = 4.5 days
Whether the employer can deduct that overage from final pay depends on whether the contract or staff handbook contains a clear written agreement allowing it. ACAS guidance is clear: without that written agreement, the deduction is unlawful, even if the employee took the leave knowing they were close to leaving.
Carry-over and notice period
Notice period counts
Holiday continues to accrue during the notice period whether the employee is working it, on garden leave, or being paid in lieu. The accrual end date is the actual termination date, not the date notice was given.
Garden leave
Garden leave (where the employee is asked not to attend work but remains employed) counts as employment for accrual purposes. Some employers use the garden leave period to require the employee to take outstanding holiday rather than be paid in lieu. That is allowed if the contract permits it and the right notice is given (twice the length of the leave period in advance, per regulation 15).
Carry-over from previous years
If the employee has unused leave validly carried over from a previous leave year, you must add it to the current year's accrual before deducting taken leave. The most common situations are:
- Sickness carry-over · up to 4 weeks of statutory leave can be carried over for 18 months, where the employee was unable to take it due to long-term illness.
- Statutory family leave carry-over · the full 5.6 weeks where a person could not take their leave because of maternity, paternity, adoption, shared parental, or neonatal care leave.
- Contractual carry-over · whatever the contract or staff handbook allows. For our deeper guide, see our annual leave carry forward rules guide.
If they took more leave than they accrued
This is one of the most legally exposed areas of leaver pay. The rule from ACAS is precise:
An employer can deduct money from final wages only if both of these are true:
- The person has taken more holiday than they built up
- It is agreed in the contract or in writing beforehand
If you do not have a written agreement, the deduction is an unlawful deduction of wages under section 13 of the Employment Rights Act 1996, even if the employee took the leave knowing they were close to leaving.
Look for a clause that explicitly allows deduction for overtaken holiday. Generic deduction clauses are not enough. The wording needs to mention holiday specifically.
Days taken minus days accrued. Round to the nearest half day.
For most workers this is annual salary ÷ 260 days for a 5-day worker. For irregular hours staff, use the 52-week reference period.
The deduction can only reduce pay to NMW level for that pay period. If the deduction would take the employee below NMW for the period, you cannot make it.
Always document the deduction and the calculation in the final pay statement. Reference the contract clause that authorises it.
Five common mistakes
1. Forgetting carry-over from a previous year
If the employee was on long-term sick or family leave, they may have up to 4 (or even 5.6) weeks of carried-over leave from the previous year. Adding that in is mandatory, not optional.
2. Excluding the notice period from accrual
The accrual end date is the termination date, not the date notice was given. A 4-week notice period adds roughly half a month of accrual.
3. Deducting overtaken leave without a written agreement
Without specific contractual wording, the deduction is unlawful. ACAS guidance is unambiguous on this point.
4. Rounding down
Always round up, or to the nearest half. Rounding down can take the figure below the statutory minimum and create an unlawful deduction.
5. Using the wrong daily rate for pay-in-lieu
For irregular hours workers, the daily rate must be calculated from the 52-week reference period, not a notional fixed rate. Using a flat day rate for someone whose pay varies materially across weeks is a frequent source of tribunal claims. For the detail, see our guide to how holiday pay is calculated.
Sources
Frequently asked questions
What is the legal basis for calculating leaver holiday entitlement in the UK?
Regulation 14 of the Working Time Regulations 1998. It requires employers to pay an employee in lieu of any statutory holiday accrued but not taken at the date of termination. The accrual is based on the proportion of the leave year the employee has worked. Employers can use any method during employment, but the final figure on termination must not fall below this statutory minimum or the employer risks an unlawful deduction of wages claim.
Which method is more accurate, months worked or calendar days?
The calendar days method is more precise because it counts every day the employee was actually employed in the leave year. The months method is simpler and what most employers use, but it can over or under-state entitlement by a few days. Either is acceptable provided the result is at least the statutory minimum. The months method works best when the employee starts and ends close to month boundaries. For mid-month dates, calendar days is more defensible.
Can I deduct from final pay if an employee took more holiday than they accrued?
Only if there is a written agreement in place beforehand, usually a clause in the employment contract or staff handbook. Without that written agreement, the deduction would be an unlawful deduction of wages under section 13 of the Employment Rights Act 1996, even if the overage is the employee's fault. The clause must be specific. A general statement that the employer can deduct any sum is not enough.
Do I need to round up the leaver figure?
Statutory rules require employers to round up part days during the first year of employment. After that, the law allows rounding to a part day. In practice, most employers round up to the nearest half day for clarity. Employers must never round down because that would deliver less than the statutory minimum. Whichever rule you apply, write it into the leave policy so the same approach is used for everyone.
Does notice period count towards accrual?
Yes. Holiday continues to accrue throughout the notice period whether the employee is working it, on garden leave, or being paid in lieu of notice. The end date for accrual is the actual termination date, not the date notice was given. So if an employee works a 4-week notice period, the calculation includes those 4 weeks. For a payment in lieu of notice, the entitlement still includes the notional notice period.
What about carried-over holiday from previous years?
Any unused leave that has been validly carried over from a previous leave year must be added to the current-year entitlement before the calculation. This is most common where the employee was on long-term sickness or family leave and could not take their leave in the year it accrued. The cap is 4 weeks of statutory leave for sickness carry-over, with 18 months to use it. Any contractually-allowed carry-over from a previous year also gets added.