It’s rarely a good thing having to fire someone. Even if they turned out to be The Worst Employee Ever and you can’t wait to see the back of them, the circumstances are never particularly pleasant.
You never know quite how an employee will react to the news that you’re calling time on your working relationship. Emotions can run the gamut from disbelief and shock to upset and grief to confrontational or even aggressive.
Dealing with someone shouting at you that you’ve “made a terrible mistake” and that you’ll be “hearing from their lawyer” or with someone who is weeping and promising to do better if only you’ll let them stay, are two kinds of scenario that turn what should be a relatively normal working day into a stressful nightmare.
And that’s not even taking into account the time and money you’ve spent on recruiting, training and employing this person.
However, it’s a sad fact of life that people do get fired, and if you’re working in Human Resources, you’ll inevitably be the one who deals with the admin (and aftermath!?) side of things.
But what happens to an employee’s leftover vacation allowance once you’ve taken the decision to let them go?
Do you really have to pay someone for their hypothetical remaining vacation days when they’re no longer going to be working for you? Especially if they’ve been woefully inept / caught stealing company property / selling trade secrets to your competitors / *insert other fireable offense here!
So the billion dollar question is;
Must you REALLY pay leftover vacation to a fired employee?
We hate to be the bearers of bad news, but yes. Yes you do. And it’s irrelevant of the reason why you’re firing them - even if you’re letting someone go due to gross misconduct.
Basically, UK law states that you must pay any employee who leaves your company (for whatever reason) what you owe them. And that includes any vacation allowance that they have not yet used.
And chances are, when you let someone go (or make them redundant, or they leave of their own free will) they will have some annual leave saved up that they haven’t yet taken.
If they’re a full time employee, those days could include the 28 days statutory annual leave as per the UK government legal requirements (including bank holidays.) And they could also include any additional days you offer your employees as part of your company’s annual leave allowance.
If your employee does not have fixed hours or fixed rates of pay, you can use the Government guidelines here to find out how to calculate statutory vacation pay for this category of worker.
How do you calculate what you owe a fired employee?
You need to calculate the vacation pay that you owe an employee up to their date of termination. In other words, to the end of the period of notice that you have given them.
If the situation resulted in them being fired on the spot and you sent them home that same day, you should calculate vacation allowance to be paid to that specific date.
But what about other situations where circumstances haven’t resulted in a firing? For example, in the event that you have had to make someone redundant, or they are leaving the company of their own accord?
How to pay leftover vacation to an employee who’s resigned
If an employee has decided to leave your company, their final wages will normally include salary for the last month they worked, plus their remaining vacation allowance. This is known as payment in lieu of vacation and it just means that if, for example, they have four days of vacation that they haven’t taken, you need to pay them four days’ salary.
This works both ways, however. If you find yourself in a situation where an employee has taken more vacation than they have actually accrued, you can deduct the amount of pay owed for those additional days from their final salary.
How to pay leftover vacation to an employee who’s been made redundant
If you’ve unfortunately had reason to make an employee, or employees, redundant, any leftover vacation allowance they may have should be calculated in the same way as if they were being fired, or had handed in their notice.
Making someone redundant should not have any effect on their vacation pay and this should simply be added to any other amount you pay them as part of their redundancy package.
So that means your redundant employee’s final pay packet should consist of their final month’s salary for the time worked, their leftover vacation days, plus any redundancy pay that you have agreed to give them.
What if an employee wants to take vacation during a notice period?
It might be slightly tempting to view this as a bit of a hassle and ‘more admin’ but it really doesn’t have to cause too much of a problem, if any at all.
If an employee is asking to book time off and use up vacation during their notice period, just treat the notice as if it were regular working time and deduct the days taken off from the end vacation pay figure.
One factor that could complicate matters, however, is if an employee leaves the company without giving you the notice period as determined by your policies. They could therefore be in breach of their contract with you, and you can step in and enforce any relevant clauses concerning pay deductions that are in that contract.
Must you pay leftover vacation to a fired employee: conclusion
To summarize, yes, you need to pay what you owe in terms of hours worked and leftover vacation allowance to all of your employees. Regardless of whether you’ll be waving them goodbye with a tear in your eye, or you’ll be cracking open a bottle of something cold and fizzy the minute they’ve left the building for the very last time!
It might be galling having to pay someone you’re firing additional pay, but that’s how it works. And looking on the bright side, your dealings with that person are now, hopefully, done and dusted and you can now focus on finding their (far superior) replacement.