When employment ends, the employer must pay the employee their final pay which is comprised of multiple components. This includes any outstanding wages and any entitlements that need to be paid when an employee leaves the business.
When the employee receives this payment depends on the employment agreement, but most final payments are made in the pay cycle when employment ends. In some cases, employees may be entitled to payment for public holidays that fall after the end of their employment.
Annual leave
The final holiday pay calculation will depend on how long the employee has been employed. If an employee has been working for under 12 months, they will not be entitled to annual leave. In this case, the employee must be paid out any of their accrued annual leave. The final holiday payment is calculated at 8% of the gross earnings during the employment period.
If an employee has been working for over 12 months, the calculations are slightly more complicated, please refer to the Peninsula guide on calculating holiday pay for more information.
Sick and bereavement leave
Legally, employees are not entitled to be paid out for unused sick or bereavement leave.
When does an employee’s final pay have to be paid?
An employer and employee can agree that the final pay will be made on the employee’s last day of work. At the latest, employees should receive their final pay on the next payday after employment ends.
What to include in final pay
- All hours the employee worked from the last pay period up until the final day of employment.
- Unused annual holidays including any alternative holidays which may be owed.
- Extra lump sum payments and other payments are specified in the employment agreement. If necessary, these can be negotiated between both parties as part of a leaving package.
When calculating an employee’s final pay, be aware of any deductions that need to be made. Deductions can be made for a variety of reasons such as company property, damages, training fees. However, all deductions must be reasonable, and employers need to be careful as some may need to be proposed if they were not previously agreed to.
An employee who believes they have been underpaid may raise a claim, seeking both to recover the unpaid wages and if they deem necessary, seek compensation for the breach. This includes recovery of any loss for any deductions that are deemed unlawful.
Impact of notice on final pay
Whether or not an employee gives proper notice can influence the final pay they receive.
If an employee does give notice of their resignation, they must receive the total amount of final pay up to the end of the notice period.
If the full or part of the notice period is waived at the request of the employer, the employee will still be paid for the full notice period despite not being at work as well as any leave owing. This can only be done if the option is outlined in the employment agreement.
If part of the notice period is waived at the request of the employee, the employer is only obliged to pay for any outstanding wages up to the mutually agreed final day of employment as well as any leave owning.
In some circumstances, employees who do not give proper notice may incur deductions from their final pay. If the employer has suffered a quantifiable loss due to finding cover, the employer may be able to make deductions from the final pay. Deductions are a tricky area to navigate due to strict protections and penalties around an employee's pay. Please seek advice before making any deductions.