Redundancy Holiday Pay

Redundancy holiday pay is one of a number of payments employers must make to an employee when their employment ends by reason of redundancy.

Here, our expert HR professionals explain how redundancy holiday pay works, including what an employee facing redundancy is entitled to and how you should calculate it.

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Are Redundant Employees Entitled To Holiday Pay?

Yes, by law, you must pay a redundant employee for any holiday they have accrued but not taken by the time their employment with your organisation ends. This is referred to as ‘pay in lieu of holiday’. Crucially, pay in lieu of holiday is only permitted when an employee’s employment has been terminated.

What Is Redundancy Holiday Pay Based On?

Redundancy holiday pay is based on how much annual leave the redundant employee has accrued before their employment is terminated.

Statutory leave entitlement provides all full time workers with 28 days annual leave each year, which is the equivalent of 5.6 weeks holiday. You can include bank or public holidays as part of an employee’s annual leave entitlement.

An employee’s contract of employment might allow them more holiday entitlement than that provided by law.

If you’re unsure how many days you should base an employee’s redundancy holiday pay on, you should seek expert guidance from HR specialists like us.

How Do You Calculate Redundancy Holiday Pay?

You can use the following formula when calculating redundancy holiday pay: (A x B) – C.

A is the employee’s annual leave entitlement. This might be dictated by law or stated in their contract of employment.
B is the proportion of that leave they have accrued at their termination date. If they have worked 6 months of the holiday year, they would have accrued 50% of the annual leave entitlement, i.e. 0.5 of a year.
C is the amount of leave they have already taken.

Once you have established how many days holiday the employee has remaining, you can apply their daily pay rate and calculate the pay in lieu of holiday accordingly.

What Do You Need To Pay As Well As Redundancy Holiday Pay?

In addition to pay in lieu of holiday, all employees who have worked for you for two years or more are entitled to redundancy pay.

You should check the employee’s contract of employment for any terms stating how redundancy pay should be calculated. If there’s nothing in their contract or any other of your organisation’s handbooks, you’ll need to pay them statutory redundancy pay, which is calculated as follows:

Half a week’s pay for each year they worked for you whilst under the age of 22.
A full week’s pay for each year they worked for you whilst 22 or older but under 41.
One and a half week’s pay for each year they worked for you whilst 41 or older.

The length of service for statutory redundancy pay is capped at 20 years and, at the time of writing, the weekly pay is capped at £700 regardless of the employee’s actual salary.

Accordingly, the maximum you have to pay a redundancy employee in 2024/2025 is £21,000.

Redundant employees are entitled to their contractual notice period. If their contract doesn’t deal with notice periods, they are entitled to statutory notice. They can continue working for you during that period, and you must pay them as usual.

In some cases, you can pay the employee in lieu of their notice period. This might be preferable if, for example, you believe they might disrupt their colleagues were they to stay and work their notice. You can only make a payment in lieu of notice (also known as PILON) if the employee’s contract of employment allows you to or if you agree it with the employee.

How We Can Help

At Gap HR, we provide bespoke HR and employment law services to small businesses throughout the UK. Known for our straight talking, commercially focused advice, and for our willingness to go above and beyond for our clients, we have a proven track record of keeping our clients legally compliant and tribunal free. Our HR experts step in to handle any issues with employees, including redundancy, so that you can focus on the continued success of your business.