Help for small firms: Handling pay and wages
Handling pay and wages - Step 7: Ending employment
For a variety of reasons a worker's employment relationship with you may come to an end. If they are a worker, then a notice period is not usually necessary. If they are an employee, both they and you are entitled to a period of notice if the other wishes to end the contract.
To end an employee's employment, the statutory minimum notice you are required to give is:
- at least one week's notice if they have been employed continually for more than one month
- at least one week's notice for each complete year of continuous employment up to a maximum of 12 weeks. For example, someone employed for more than eight years would be entitled to eight weeks' notice.
If you and your employee want to agree a shorter period of notice, then you should contact the Acas helpline on 0300 123 1100 to discuss your options.
To end their employment, an employee is required to give you at least one week's notice if they were employed continuously for at least one month. This minimum is unaffected by longer service.
If your employee's Written Statement of Terms and Conditions of Employment contain a longer notice period than the statutory minimum, the longer notice will apply.
During the notice period, employees should be paid their normal pay and benefits set out in their Written Statement. For more information, go to Terminating employment - notice periods and pay.
Factors that may affect pay
There are a number of factors that may affect pay when employment ends. While not an exhaustive list, they include:
Absence from work during the notice period: An employee, whose notice requirements are the statutory minimum, will still be entitled to their normal pay during their notice period if they are absent from work but are:
- available and willing to work (and their absence is because you do not provide them with any work). For example, if the employee is laid off
- incapable of work due to sickness or injury
- away because of pregnancy, childbirth or adoption, maternity, parental or paternity leave
- on annual leave.
If your employee is away from work for any other reason, you do not have to pay them during their absence.
If the notice requirements are longer than the statutory minimum, whether any absences are paid will depend on the terms of their Written Statement.
Garden leave: This is where during their notice period an employee is not required to be present at work. While on garden leave, an employee should still receive their normal pay
Payment in lieu of notice (PILON): A contract of employment may allow you to pay your employee without having them work their notice. If there is not a provision in their contract allowing you to pay them without them working their notice, doing so will usually amount to a breach of contract. However, if you pay them for all the remuneration and any benefits they would have received had they worked their notice period, you may be able to successfully argue that they have been compensated for any breach. For more information, go to www.acas.org.uk/pilon.
Dismissal because of gross misconduct: The employee is still entitled to any outstanding holiday pay and wages, but the dismissal is usually without notice.
Examples of gross misconduct may include theft and fighting.
Frustration of the employment contract: Where an event that is reasonably unforeseen makes the contract:
- unlawful to perform
- radically different to what the parties intended, for example, the imprisonment or death of an employee.
Frustration means that neither a dismissal nor resignation has taken place - the contract simply ends. Any outstanding pay and annual leave must still be paid, but no notice requirements or notice pay are due. Employment tribunals are usually reluctant to accept that a contract of employment has been frustrated and require strong evidence to show there was no other option.
Redundancy: If you end the employment of an employee with more than two years' continuous service because their role is redundant, they have the right to a statutory redundancy payment. The amount depends on the employee's age and length of continuous service with you. At or before the time the redundancy payment is made, you must provide the employee with a statement in writing showing how it has been calculated. For more information, go to Redundancy payments and notice.
Taking time off for job hunting or to arrange training when facing redundancy: An employee who has been employed for more than two years and is given notice they will be made redundant, should be allowed a reasonable amount of time off to look for another job, or to attend training courses to help them find employment. Even if you allow your employee more time off, you only need to pay them for up to two-fifths of their working week in paid time off. For example, an employee who works five days a week should be entitled to two days' paid leave to look during their notice period for another job. If you allowed them more than two days off, unless their contract enhanced the entitlement, whether that extra was paid or not would be your decision.
Finalising the final payment
When your worker's employment comes to an end, they will usually be entitled to:
- any outstanding pay
- pay for any accrued statutory annual leave untaken at the end of their employment. Payment for any untaken contractual annual leave will depend upon the terms of their contract
- payment for working a 'week in hand' when that is how they have been paid
- a P45.
An employee will also be entitled to a final pay statement.