After an employee resigns, the employer must calculate their final pay. When the employee receives this payment depends on the employment agreement, but most final payments are made on the employee’s usual pay day after employment ends. In some cases, employees may be entitled to payment for public holidays which fall after the end of their employment.
What to include in final pay
An employee’s final pay must include the following:
All hours worked from the last pay period up until the final day of employment.
Unused annual holiday entitlement, including any alternative holidays which may be owed.
Extra lump sum payments and other payments 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.
If an employer does not pay the full amount of an employee’s final pay, they are in breach of the employment agreement. 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.
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Employees who do give notice
Whether or not an employee gives proper notice can influence the amount of 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.
An employer can ask the employee to not work the full notice period, but the employee must still receive payment for the full notice period in their final pay despite not being at work. This can only be done if it is in the employment agreement or both parties mutually agree.
Some of the notice period can be waived if requested by the employee, but in the event that this occurs, the employer is not required to pay the employee for any time that is waived, unless otherwise agreed.
Employees who do not give notice
An employee who does not give proper notice may not be entitled to the same amount of final pay as those who do. Because the employee has given less notice than that stipulated in their employment agreement, this would be considered a breach of contract.
To make up for this, an employer may be able to make authorised deductions from their final pay to offset any unworked days of the specified notice period.
Calculating final holiday pay
As part of an employee’s final pay, any unused annual holidays and alternative holidays owing must be paid to the employee. This applies to employees who have retired, been terminated, made redundant, or resigned for any other reason.
The final holiday pay calculation will depend on how long the employee has been working for the employer. If an employee has been working for under 12 months, they are not yet entitled to be paid annual leave in their final pay. In this case, 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 Employsure guide on calculating holiday pay for more information.
An employer may also need to consider whether an employee is entitled to an annual leave cash up as part of their final payment. An annual leave cash up is when an employee is paid out for any unused annual leave entitlements that they have accrued but not taken.
However, not all employment agreements provide for an annual leave cash up, so it is important to check the agreement or workplace policies to determine whether an employee is entitled to it.
If an employee is entitled to an annual leave cash up, this should also be included as part of their final pay calculation.
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 pay day after employment ends.
Frequently Asked Questions
How do you calculate final pay?
An employee’s final pay must include:
- Payment for all the hours worked since the last pay until the end of employment.
- Payment for annual holidays, public and alternative holidays owing.
- Any additional lump sum or other payments owing. These may be included in the employment agreement or negotiated as part of a leaving package.
What happens if I underpay an employee?
If an employee does not receive the full owed amount of their final pay, they may have a claim for unpaid wages or holiday pay, or another breach of their employment agreement.
What is termination pay?
Employment termination payments (ETPs) are a lump sum payment made on termination of employment. Not every terminated employee receives an ETP – it depends on what the termination pay is made up of and whether any of those payment types fall into the ETP classification.
For advice on how to calculate final payments in the workplace, contact Employsure on 0800 568 012.
