When an Employee Leaves, how do you Calculate Their Final Pay?

In this article we look at How You Calculate a Leaver’s Final Pay. If you are a small business without a dedicated HR/Payroll department, such things can be a bit time consuming. If you are looking for an outsourced Payroll specialist to take the strain, talk to us.

Firstly, comes Basic Pay

How much will the departing employee be due for the pay period?  If they work monthly but finish part way through the month, then the pay they are due will need to be calculated on that basis

What About Holiday Pay?

Is the departing employee owed any holiday? Conversely, have they taken too much holiday for the proportion of the holiday year they have worked.  If an employee has taken more holiday than they are due, you can deduct it from their final pay.

Holiday pay needs to be calculated based on the days the employee has worked each week and the number of weeks they have worked during the holiday year. Don’t forget that bank holidays must also be included in the calculation.

Calculating holiday pay due can be very complex if an employee works variable hours and days each week.

Absence?

Has the employee had any absences during the current or previous pay period which need to be deducted from their final pay?  If they refuse to work their notice period or have any other unexplained absence you are not required to pay them.

Other Deductions

Are there any other deductions that need to be made from the employee’s final pay that are not covered above?  Temporary loans would come into this category. For example, if you have made the departing employee a temporary loan which has not been repaid at the point of their departure, then this must be considered when it comes to calculating final pay.

However, it is important to ensure that any deduction from their final pay is lawful as set out in their contract of employment.  With the likes of temporary loans, it is likely to be a deduction from their net pay and therefore will not affect their tax and national insurance.

What About Week in Hand?

Some weekly paid employees only receive their first pay at the end of the second week of their employment. Under these circumstances. This is known as ‘week in hand’ pay. If this is the case with the leaving employee, you must pay them this additional week of pay which is due to them with their final pay.

And Finally………..

Every employee is entitled to a P45 and must be sent one when their final pay has been calculated.  Final pay will usually be calculated at the same time as the normal weekly or monthly salary and leavers cannot expect to receive their pay earlier than normal.  HMRC rules are that pay information is submitted to them on the same day or before an employee receives their pay.

Talk to us for Help and Advice About All Things Payroll

As you can see, there are quite a few more things to think about when it comes to getting a leaver’s final pay correct than first seems the case. It is important to get the calculations right before submitting the final pay information to HMRC as it is not straightforward making a correction afterwards.

If you need some help and advice on this matter, contact us or call us on 0121 422 0550 for an initial chat.

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