Final pay and processing leavers in the United Kingdom
Reviewed by Mellow Editorial Team, HR & payroll content team
When an employee leaves, their final pay must include all outstanding wages, accrued but untaken holiday pay, and any contractual termination payments — all processed through PAYE in the normal way, with RTI submissions made on or before the final payday.
What final pay must include
Final pay is not simply the last month's or week's salary. You need to calculate and include:
Outstanding wages. Pay the employee for every day worked in their final pay period, up to and including their last day of employment.
Accrued holiday pay. Employees are entitled to 5.6 weeks of statutory annual leave per year (28 days for a standard five-day week). If the employee has taken fewer days than they have accrued by their leaving date, you must pay the difference. If they have taken more than they have accrued, you can deduct the excess, but only if the employment contract explicitly permits this.
Notice pay. If you are paying in lieu of notice (PILON), check whether it is contractual or non-contractual — this affects how it is taxed. Contractual PILON is subject to income tax and National Insurance in full. Non-contractual payments are more complex; the first £30,000 of a genuinely compensatory termination payment can be tax-free, but any element that represents earnings or notice must still go through PAYE.
Other contractual entitlements. Bonuses, commission, or other payments that have been earned but not yet paid remain due even after notice is handed in, unless the contract states otherwise.
Running the final payroll
Process the final pay through your normal payroll in the same way as any other pay period. Deduct income tax using the employee's current tax code. For the 2026/27 tax year the personal allowance is £12,570; basic-rate tax is 20%, higher rate 40%, and additional rate 45%. Employee National Insurance is 8% up to the upper earnings limit, then 2% above it. Employer NI is 13.8%.
If you use a cumulative tax code (most common), the payroll software will account for any tax already paid in the year and arrive at the correct deduction automatically. If you are making any payment after the employee has already left and after you have processed their final FPS, you will need to run an additional payroll run for that payment and submit a further FPS.
RTI submissions and the leaving date
Under Real Time Information, you must submit a Full Payment Submission (FPS) on or before the date the final payment is made — not on or before the employee's last day of employment, which may be different. On that FPS, you must:
- Enter the employee's leaving date in the correct field.
- Ensure the year-to-date figures are complete and accurate.
Once the leaving date is reported on an FPS, HMRC updates their records and the employee's tax code is no longer live on your scheme. Do not continue including a leaver on subsequent FPS submissions.
P45 and year-end documents
You must issue a P45 to the employee when they leave. The P45 shows their tax code, total pay to date, and total tax deducted to date for the tax year. Employees need this for their next employer or for HMRC if they are claiming benefits. There is no statutory deadline expressed in days, but you should issue it as promptly as possible — certainly on or before the final payday where practicable.
If the employee leaves part-way through a tax year and the P45 has already been issued, do not send a P60. P60s are only for employees still on your payroll at 5 April; you must issue them to continuing employees by 31 May each year.
If you provided any benefits in kind, you still need to report them on a P11D by 6 July for the tax year in which the employee left, even if they have already gone.
Day-one rights and the Employment Rights Act 2025
The Employment Rights Act 2025 has strengthened day-one rights for employees, which has a practical consequence for leavers: employees who leave very early in their employment may still have entitlements you had previously assumed did not apply. Review your leaver process to ensure it accounts for accrued holiday from day one and that any dismissal process, however brief the tenure, is handled carefully.
For employers managing leavers across multiple jurisdictions, the complexity compounds quickly — different countries have different notice period rules, termination payment tax treatment, and social contribution obligations. Keeping a clear, documented leaver checklist for each country you operate in reduces the risk of errors that attract HMRC penalties or employment tribunal claims.
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