If you are entering into a compromise agreement with your employer, it may set out a number of different payments that you are entitled to receive. This should include payment for accrued but untaken holiday.
The minimum amount of holiday that any employee is entitled to is 5.6 weeks per year. For most full time employees this adds up to 28 days per year. The total is inclusive of bank holidays.
Usually, an employee is not allowed to receive a payment in substitute for not taking their holiday. However, the exception to this is where your employment is terminated part way through the holiday year, for example under a compromise agreement. In these circumstances, the law requires the employer to pay you for any untaken holiday.
The payment due should be set out in your compromise agreement. It is usually calculated on the basis of the annual salary divided by the number of working days for each day's holiday entitlement. The relevant calculation for a full time worker is 1/260.
Holiday accrues at the rate of 0.46 weeks per month. For a full time worker, this would be 2.3 days per month.
Often, the compromise agreement states precisely how many days' accrued but untaken holiday you will be entitled to. However, if this is not stated, you may want to ask your employer for a breakdown of how much you should expect.
Payment for accrued but untaken holiday will always be taxable up to the termination date. It would not therefore be appropriate for the compromise agreement to include it as part of a tax-free compensation payment. Instead it should be stated separately.
If you are receiving a Payment in Lieu of Notice in the compromise agreement, you are not entitled to receive payment for the holiday that would have accrued during that notice period. Holiday accrues only during the period that you actually work.
It would however accrue during any garden leave period. Your employment contract or compromise agreement may require you to take your holiday during your garden leave period, rather than be paid for it at the end.
Sometimes, an employment contract will allow the employee to take more than 28 days’ holiday. This is called a contractual holiday entitlement. You are not entitled to be paid for untaken contractual holiday entitlement over and above the statutory minimum. However, your employer may agree to pay you this in the compromise agreement.
If you have taken more than your accrued holiday entitlement, the law does not allow your employer to deduct money from your final salary unless there is an express right to do so in the employment contract or in the compromise agreement.
The law requires that employees receive legal advice on a compromise agreement. You should make sure that your adviser is experienced in advising on compromise agreements and is familiar with your legal entitlement to holiday pay and any other entitlements.
