When an employee leaves your company, they have a legal right to:
Be paid for the worked notice period
Be paid for any unused annual leave.
Receive contractual pay such as allowances and benefits up to their leave date.
Receive a P45 and a final payslip on or before payday.
Employers can deduct any overtaken holiday, or overpayments of salary, only if it's stated in their employment contract.
Employers don't have to pay the unworked notice if this is stated in the employment contract, or if the employee has breached the contract by not working their notice.
Statutory minimum notice periods
Employees must be given notice before their employment ends. The statutory (minimum) notice periods are:
At least one week's notice if employed between one month and 2 years.
One week's notice for each year if employed between 2 and 12 years.
12 weeks' notice if employed for 12 years or more.
Employers can give more than the statutory minimum, but they can't give less. Always refer to the employment contract. For further information, please refer to this ACAS guidance.
Feature Overview: Contract terminations
✅ PayFit automatically calculates any payments due to an employee when they leave the company (payment in lieu of notice or payment in lieu of holiday).
✅ Any contract termination payments calculated by PayFit can be overwritten.
✅ You can edit or cancel a contract termination at any time in the month that the employee leaves, or in the following month.
✅ P45s are automatically issued to the employee when running your payroll for the month.
❌ Admins can't finalise a contract termination in a future month.
❌ P45s are only generated once you run payroll in the month the employee is leaving.
❌ Contract terminations can't be processed in bulk.
Terminate a contract
To terminate a contract:
From the employee's record, choose the Employment tab.
Under the Contract section, click Terminate contract.
Enter the relevant reason for leaving. You'll be asked for specific dates based on the reason for leaving. I.e., date notice given, or final day of work.
Click Continue to termination payments.
Review the termination payments. If necessary, click Overwrite amount to add your own values. For further information about each payment, please refer to the Termination payments section below.
Click Continue.
Under the 3. Payment After Leaving section, choose whether the employee will receive further payments after their contract has been terminated. For further information about payments after leaving, please refer to this Help Centre article.
If the employee's space was activated with their professional email address, you can select the option to send the employee an email, to remind them to change their login email address.
Click Save.
If they have any recurring payments, deductions or company benefits, you'll be prompted to end these if applicable, then click Save.
Once you refresh your browser, the employee's status shows as Leaving this month and a Contract termination section is visible on the Employment tab.
Edit or cancel a contract termination
Admins can edit or cancel the termination at any point in the month that the employee's contract was terminated on PayFit, or the following month. To do this;
From the employee's record, click the Employment tab.
Under the Contract termination section, click Edit termination details or Cancel termination, as necessary.
Once the contract termination is processed and your payroll is run, the contract termination details are included on the FPS and submitted to HMRC.
Note: HMRC advises against changing an employee's leaving date. That's because it can cause the employee's record to be duplicated, causing a discrepancy in their records.
Termination payments
Payment in lieu of notice (PILON)
Payment in lieu of notice is calculated if the employee's leave date is before their contractual notice period ends. If PILON isn't calculated but you'd still like to pay a notice period, from the Employment tab, under the Contract termination section, click Give PILON anyway. You can also override the amount calculated by PayFit using the Overwrite amount option.
For further details about the calculation, please refer to this Help Centre article.
Pay in lieu of holiday (PILOH)
If an employee has undertaken or overtaken annual leave, PayFit calculates the payment or deduction due. If necessary, you can override the number of days, or the amount, by clicking Overwrite amount.
For further details about the calculation, please refer to this Help Centre article.
Redundancy pay
Statutory redundancy pay is calculated as follows:
half a week’s pay for each full year they were under 22
one week’s pay for each full year they were 22 or older, but under 41
one and half week’s pay for each full year they were 41 or older
The employee must worked for at least two years to be eligible.
The weekly rate of statutory redundancy is capped at £700 in Great Britain contract, or £729 in Northern Ireland.
If the worker earns more than the redundancy pay cap amount, they'll receive this weekly rate as a maximum. If they earn less than this, they'll be paid based on their actual earnings.
If it's agreed that the employee will receive a higher redundancy payment, click Add occupational redundancy amount under the Contract termination section.
Ex-gratia or Settlement payments
The first £30,000 of ex-gratia or settlement payments aren't liable to tax and national insurance. Anything over £30,000 is subject to tax (employee only) and Class 1A NIC (employer only).
There's no specific calculation for ex-gratia or settlement agreements. They're usually agreed upon termination and tend to include damages and compensation for the loss of employment.
Settlement payments
Settlements are usually paid when trying to settle a potential claim brought against the employer. Employees who receive a settlement agreement can't take an employer to an employment tribunal. These agreements might relate to redundancies but can be used in a number of situations.
Ex-gratia payments
An ex-gratia payment is a discretionary payment made by an employer where there is no contractual obligation to do so.