Holiday pay on termination clause

Employees frequently leave employment having taken more annual leave than they’ve accrued during the holiday year and it’s safe to assume that you’ll want to recoup the excess from any final salary payment due. However, without a holiday pay on termination clause, you can’t do this.

No clause, no deduction

In the absence of an express agreement to deduct the value of excess holiday from final salary, you cannot make such a deduction. If you do, you risk an employment tribunal claim either under the Working Time Regulations 1998 or for an unauthorised deduction from wages. Therefore, always include our Holiday Pay on Termination Clause in all of your staff contracts of employment because it enables you to make an appropriate deduction from an employee’s final salary payment in respect of holiday taken over and above their accrued holiday entitlement at the date of termination of employment.

Accrued but untaken leave

Where the opposite applies and the employee has accrued but untaken annual leave on termination of employment, they are entitled under the Working Time Regulations 1998 to a payment in lieu of unused annual statutory annual leave for that holiday year only (but there are also some exceptional cases where the employee may have been entitled to carry over some or all of their annual leave from a previous holiday year, e.g. where they were unable to take it due to being absent from work on sick leave or maternity leave).