Pay-in-lieu of holiday (PILOH)
Any unused annual leave must be paid to leavers at the end of their contract. Overtaken annual leave can be deducted from the employee's final pay only if it's stated in their employment contract. If you record annual leave in PayFit, any PILOH is calculated automatically.
Calculate annual leave remaining
First, we need to calculate how many days of annual leave remain. Here's how it's done:
Determine the total number of days of annual leave (including bank holidays)
Divide by 365 or 366 calendar days in the year and multiply by the number of calendar days employed.*
Subtract any holidays taken (including bank holidays)
*This figure isn't rounded, in line with the HMRC guidance.
Example
Niall's contract started 13 May 2024 and ends 29 July 2024. He's been employed 77 days in the annual leave year, and has an annual leave entitlement of 28 days plus 8 bank holidays.
Total number of days annual leave, 36 days.
Divide by 366 calendar days in the year, multiplied by 77 days worked in the annual leave year, 7.57 days.
Subtract 3 days taken already, 4.57 days remaining.
Calculate the holiday pay
Now that you know how many days of holiday to pay, let's look at how much to pay for those days.
PayFit offers two calculation methods to determine a worker's daily rate for holiday pay:
Tip: To check your preferences, from the left, choose Company settings, then Payroll set-up. You'll find it under the Calculation preferences section, next to Daily rate for Holiday pay.
Based on business days in the year.
Based on business days in the month.
Example
Niall has an annual salary of £35,0000 and the company preference is to pay based on 262 business days in the year.
£35,000/262 business days in the year x 4.57 days remaining = £610.50
If the company preference is to pay based on business days in the month:
£35,000/12 months/21 business days in the month x 4.57 days remaining = £634.72
Pay in lieu of notice (PILON)
PayFit automatically calculates pay in lieu of notice (PILON) based on the employee's base pay and days remaining in the notice period.
PILON is payable if:
The employer stops the employee from working during their notice period.
The employee doesn't finish working their notice period, but the employment contract states the employer will pay any unworked notice.
PILON is not paid if an employee is dismissed due to gross misconduct.
PILON includes base pay and any other contractual payments. PayFit calculates PILON based on base pay, but you can override the calculated values if the employee has other contractual payments.
All PILON is subject to tax (employee) and Class 1 National Insurance (employee and employer).
Calculate PILON
As with holiday pay, PayFit offers two calculation methods to determine a worker's basic daily rate:
Tip: To check your preferences, from the left, choose Company settings, then Payroll set-up. You'll find it under the Calculation preferences section, next to Daily rate for Base pay.
Based on business days in the year.
Based on business days in the month.
Example
Niall has an annual salary of £35,0000. He's worked 11 days of her 20-day notice period, so there are 9 days of her notice period that is unworked.
The company preference is to pay based on 262 business days in the year.
£35,000/262 business days in the year x 9 days unworked = £1,202.29
The company preference is to pay based on business days in the month.
£35,000/12 months/21 business days in the month x 9 days unworked = £1,250
For more information about payments when terminating an employee's contract, please refer to our Help Centre article.