When an employee is made redundant (sometimes called “laid off”), they are entitled to be paid for any annual leave they accrued but were unable to take during the year. Depending on the terms of their employment contract, you may be able to get them to take any unused holiday during their notice period. However, for the majority of people, they may have outstanding days when they leave your employment – these outstanding days will need to be paid to them as holiday pay in their final payment as a taxable payment.
Conversely, if the employee has taken more leave than they have accrued up to the point of the termination of their contract, then you can deduct holiday pay from their final salary payment.
It’s important to note that if your staff were unable to take holiday due to the pandemic, they are allowed by law to carry that holiday forward into the next two years. We would always advise agreeing how much holiday is owed with the employee before the final payroll.
If you are making redundancies because the business is insolvent, your employees are still entitled to their holiday pay as outlined above and they can make a claim through the Insolvency Service’s Redundancy Payments Service to reclaim the money owed.
Ian Moore is managing director of HR consultancy Lodge Court