How to manage staff holiday during notice periods | HR blog

How should employers manage holiday during notice periods? There are a few options when it comes to holiday for staff who are working their notice period - employment lawyer Matthew Ainscough explains.

The question of what an employee should do with their holidays during their notice period is a common issue for employers. Encouraging employees to use any outstanding holiday during their notice period can have advantages, as it means employers avoid having to make a payment for unused holiday upon termination. Also, it can be a useful way to have an employee stay away from work at a time when they could already be focusing on their next role.

Giving employees notice for holiday

Employers do have the right to require an employee to take holiday on specified dates, but only if they give notice. The notice must be at least twice the length of the period of leave that the worker is being told to take.

Contract variations

This is the statutory position, but it can be varied through a clause in the employee’s contract. Many employers will probably have their own specific notice periods, perhaps which reduce the period of notice required to be given to take leave or even dispense with notice altogether, making the leave dates subject to management authorisation.

It will also depend on whether or not the employee has enough accrued holiday left to use during their notice period. Employers should calculate the employee’s pro-rata entitlement and deduct any holiday days that have already been taken.

Learn more: How to calculate holiday entitlement

Pay in lieu of holiday

On termination of employment, an employee is entitled to pay in lieu of unused statutory holiday. The payment is calculated in line with the contract of employment. If there is no such clause in the contract, employers can use the following formula:

(A x B) − C

• A is the period of statutory leave the employee would have been entitled to for the whole of the leave year in which employment ends
• B is the proportion of the employee's leave year that expired before the termination date, expressed as a fraction
• C is the period of leave taken by the worker between the start of the leave year and the termination date

Example

An employee's holiday year runs from 1 January to 31 December. The employee leaves employment on 15 August (227 calendar days into the year), having taken 11 days' holiday during the leave year.
As the employee was on a full-time contract for 5 days' work a week, this amounts to 2.2 weeks (2 weeks and 1 day) of their 5.6 week entitlement. The calculation is as follows:

• (5.6 x 227/365) - 2.2 = 1.283

The employee is therefore entitled to 1.283 x a week's pay.

This same example could also be calculated on the basis of days rather than weeks. The employee’s overall entitlement for a year expressed in days is 5 x 5.6 = 28. The amount of holiday the employee has left on termination is:

• (28 x 227/365) − 11 = 6.41

Therefore, the employee is entitled to 6.41 days' holiday pay.

Calculate holiday entitlements and manage holiday requests more easily for your business with myhrtoolkit's holiday management feature.

Not taking holiday during the notice period

If, on the other hand, an employer would prefer that an employee does not take any holiday during the notice period (perhaps due to business needs), an employer also has the right to refuse a holiday request during the notice period, again provided that notice is given, and the refusal is not discriminatory.

The notice given must be at least as many calendar days before the date on which the leave is due to start as the number of days which the employer is refusing. For example, if the employee has requested six days' leave and the employer wishes to refuse five days of the request, they must give notice at least five days before the date on which the leave was due to start.

When an employee owes holiday

But what if the employee has used up more holidays than they are entitled to? If this is the case, an employer also has the right to recover payment from the employee, provided that this is set out expressly in their contract of employment.

Holiday entitlement and PILONs

Employers frequently dismiss employees without notice, instead making a payment in lieu of notice (PILON) equivalent to their salary during the notice period. In such cases, statutory holiday pay is calculated up to the date of termination and there is no right to accrue holiday (or to receive a payment in lieu of holiday that would have accrued) during what would otherwise have been the notice period.
There are broadly two scenarios in which a payment in lieu of notice is made:

PILON clause in contract

If the employee is dismissed with pay in lieu of notice because there is a PILON clause in the contract that allows this, then the amount of the PILON due to the employee for the notice period is calculated in accordance with the contract (i.e. basic pay only). This may or may not provide for a payment to be made in respect of holiday that would have accrued (normally it wouldn’t).

No PILON clause in contract

If there is no PILON clause in the employee’s contract, dismissal without notice will be a breach of contract and the employee may be entitled to damages for the breach. In theory, the employee would have accrued holiday during the notice period and should be compensated in damages for this loss.

However, since the employer could have required the employee to take this holiday during the notice period, and therefore would not be required to give pay in lieu of the extra holiday at the end of the notice period, the employer would argue that there is no need for further payment. In practice, this is normally what happens.

Read more from the myhrtoolkit blog

• What to do when an employee leaves the business
• Making an employee redundant: an overview for SMEs
• Negotiating terms and conditions of employment with employees