Annual Leave During Notice Period: UK Rules

Employee Rights During Notice

During the notice period, the employment relationship continues as normal. This means the employee retains all their usual rights, including the right to take annual leave. Key points:

• Employees can request holiday during their notice period in the usual way. The employer can approve or refuse the request using normal business criteria.
• Holiday continues to accrue during the notice period. The employee earns additional leave entitlement right up to their last day of employment.
• Pre-booked holidays that were approved before the notice was given should generally be honoured, unless there are exceptional business reasons to cancel them (and even then, the employer must give adequate counter-notice).

The notice period does not reduce or suspend any employment rights. Whether the employee resigned or was dismissed, their contractual and statutory entitlements remain in place until the employment ends.

Can Employers Require Holiday During Notice?

Yes, employers can require employees to take some or all of their remaining holiday during their notice period, but there are important rules:

• The employer must give counter-notice equal to at least twice the length of the holiday they are requiring the employee to take. For example, to require 5 days of holiday, the employer must give at least 10 days' notice.
• This counter-notice requirement applies to the statutory entitlement (the first 28 days for a full-time worker). Contractual leave above the statutory minimum may have different rules, depending on the terms of the employment contract.
• The notice period must be long enough to accommodate both the counter-notice and the holiday itself. For short notice periods, it may be practically impossible to require the employee to take their full remaining holiday.

Example

An employee gives 4 weeks' notice and has 8 days of holiday remaining. The employer wants them to take all 8 days during notice. They would need to give 16 days' counter-notice. Since the notice period is only 20 working days, this is technically possible (16 days' counter-notice + 4 days working), but tight. In practice, many employers negotiate a mutually agreeable arrangement rather than relying on the strict counter-notice rules.

Accrued Holiday & Outstanding Balances

When employment ends, the employee is entitled to be paid for any statutory holiday they have accrued but not taken. This is a legal right under the Working Time Regulations 1998 and cannot be waived by contract.

The calculation is:

Example

An employee with 28 days' annual leave resigns on 30 September (9 months into a January-December leave year). They have taken 18 days.

• Accrued: 28 × (9 ÷ 12) = 21 days
• Taken: 18 days
• Balance owed: 21 − 18 = 3 days' pay

If the employee has taken more than their accrued entitlement, the employer can deduct the overpayment from their final pay — but only if there is a clear contractual clause permitting this. Without such a clause, recovery may be difficult.

Payment in Lieu of Notice (PILON)

Payment in Lieu of Notice (PILON) is when the employer pays the employee for their notice period but does not require them to work it. The employee's employment ends immediately (or on an agreed earlier date).

The interaction between PILON and holiday pay depends on how the PILON is structured:

• Contractual PILON clause: If the employment contract contains a PILON clause, the employer can terminate immediately and pay in lieu. However, the employee is still entitled to payment for any accrued but untaken statutory holiday in addition to the PILON payment.
• No PILON clause: If there is no contractual PILON clause and the employer terminates without notice, this is technically a breach of contract. The employee can claim damages, which would normally include the pay they would have earned during the notice period. Holiday accrual during the unworked notice period is a grey area — it is safest to include it.

The key principle is that PILON does not extinguish accrued holiday entitlement. The employer must pay for any untaken statutory holiday separately, on top of the PILON payment.

Garden Leave & Holiday

Garden leave is when the employee is required to stay at home during their notice period but remains employed and on full pay. During garden leave:

• The employer can require the employee to take holiday during garden leave, subject to the same counter-notice rules described above.
• Holiday continues to accrue because the employment relationship is still active.
• If the employer does not specifically require holiday to be taken during garden leave, the employee will be entitled to payment for any untaken accrued holiday when employment ends.

It is good practice to state explicitly in the garden leave letter whether the employee is being required to take outstanding holiday during the period, and to provide the necessary counter-notice.

Practical Tips for Employers

Managing holiday during notice periods is simpler when you plan ahead:

• Include a clawback clause in contracts: Allow deduction of overpaid holiday from final pay. Without this, you may have no legal mechanism to recover overpayments.
• Include a PILON clause: A contractual PILON clause gives you flexibility to end employment immediately while providing certainty about the financial arrangements.
• Track leave balances in real time: You need to know exactly how many days an employee has accrued and taken to calculate their final entitlement correctly.
• Communicate clearly on day one: When an employee gives or receives notice, discuss their remaining holiday balance and agree how it will be handled — whether taken during notice or paid out.
• Get agreements in writing: Any arrangement about holiday during notice should be confirmed in writing to avoid disputes later.
• Consider the optics: Forcing an employee to take all their holiday during notice can create a negative impression. Where possible, negotiate a mutually agreeable solution.

How Leavely Helps

Leavely takes the guesswork out of leave management during notice periods:

• Real-time balance tracking: See exactly how many days each employee has accrued and taken at any point in the leave year, so you can calculate final entitlements instantly.
• Termination calculations: When an employee leaves, Leavely calculates the precise number of days owed or to be recovered, accounting for pro-rata accrual.
• Leave request management: Approve or decline holiday requests during notice periods through the same workflow used for all leave.
• Audit trail: Every leave balance adjustment, request, and approval is fully logged for compliance and dispute resolution.
• Policy configuration: Set up your carry-over, accrual, and clawback rules once, and Leavely applies them consistently across all employees.