Annual Leave During a Notice Period: UK Rules, Final Pay and the US State Map (2026 Guide)

Short answer for the UK: holiday can be taken during a notice period, but nobody can spring it on the other side. An employee asks with notice of twice the leave; the employer can refuse with notice equal to the leave, or require holiday to be taken with notice of twice its length (regulation 15 of the Working Time Regulations), unless the contract varies these rules. Holiday keeps accruing until the termination date, through sickness and garden leave. Whatever is left on the last day must be paid in lieu, even after gross misconduct, and the only lawful payment in lieu of statutory holiday is the one made on termination. In the US there is no federal rule: the state and the written policy decide.

Every month about three million Americans quit a job, and in the UK roughly 8,000 tribunal claims a year are about annual leave alone. Behind those numbers sits a scene every small employer recognises: someone hands in their notice, they have nine days of holiday left, the manager needs them for the handover, and the question lands on HR's desk the same afternoon. Can they take it? Can we make them take it? Do we pay it instead, and how much? This guide answers for the UK first, with the regulations and the official guidance behind each rule, then covers the United States, where the answer changes at the state line, and ends with the practical method for closing someone's last month without a dispute or a payroll error.

Notice periods: what the law requires

A notice period is the time between notice being given and the contract actually ending. Section 86 of the Employment Rights Act 1996 sets the statutory minimum once someone has worked for a month: the employer must give one week for under two years' service, one week per complete year between two and twelve years, and twelve weeks beyond that; the employee must give at least one week, however long they have worked. The contract can require more from either side, never less, and the written statement under section 1 must state both the notice each party gives and receives and the holiday entitlement in enough detail to calculate accrued holiday pay on termination. Notice normally runs from the day after it is handed in.

Three cases sit outside the ordinary notice period. Gross misconduct: section 86(6) preserves the right to end the contract without notice for the other party's conduct, so there is no notice and no notice pay. Payment in lieu of notice: the contract ends at once and the employer pays what the notice period would have earned, if the contract allows it or the employee agrees. Garden leave: the employee stays employed and paid, with all contractual benefits, but is told not to come in. During a worked or garden-leave notice period the contract keeps running, and so does holiday accrual: Acas is explicit that workers accrue holiday from the day they start, including during sick leave and statutory leave.

Holiday during notice: who can ask, who can require

The Working Time Regulations give 5.6 weeks of statutory holiday (28 days for a five-day week) and, in regulation 13(9), the rule that frames every notice-period question: statutory leave may only be taken in the year it is due and may not be replaced by a payment in lieu except where the worker's employment is terminated. Regulation 15 then sets the notice mechanics, which the contract can vary under regulation 15(5).

Two things follow. First, an employer who wants to run down a leaver's balance during notice can do so lawfully, but only by giving the regulation 15 notice: an eight-day balance needs at least sixteen days' written notice specifying the dates, which in a one-week notice period is simply impossible. Many contracts shorten this with a clause allowing holiday to be required during notice; without such a clause, the untaken days are paid. Second, unlike in several continental systems, holiday taken during notice does not extend the notice period: the termination date stays where the notice put it.

Contractual holiday above the 5.6 weeks is a different matter. GOV.UK notes that employers offering more can agree separate arrangements for the extra days, so a contract may lawfully say that contractual (not statutory) holiday is forfeited on leaving, or not paid in lieu, provided the wording is clear.

Sickness during notice

An employee can be off sick during their notice period, and the usual reporting rules apply. What they are paid depends on a rule in sections 87 to 89 of the Employment Rights Act that surprises many employers. If the contractual notice the employer must give is less than one week longer than the statutory minimum, the employee is entitled to full normal pay for the statutory notice period while off sick, on holiday or on family leave, with statutory sick pay counting towards it. If the contractual notice is at least one week longer than statutory, the employee gets only what the contract and the law give for the reason they are off, typically statutory sick pay. Acas's example: Alex, seven years' service and seven weeks' contractual notice, receives full pay for all seven weeks while sick; Riley, with eight weeks' contractual notice, gets only SSP. When the employee resigns, the same test is applied to the notice the employer would have had to give, and the entitlement is limited to one week's full pay. Since 6 April 2026 statutory sick pay is payable from the first day of sickness, with no lower earnings limit, at the lower of 80% of average weekly earnings or the statutory rate. Holiday continues to accrue throughout, and sickness never extends the notice period. The practical side of sickness absence, from fit notes to records, is in our guide on calling in sick.

Gross misconduct: no notice, but the holiday is still paid

A persistent myth says that an employee dismissed for gross misconduct forfeits their holiday. They do not. Gross misconduct removes the notice period and notice pay, nothing more: GOV.UK states that employers must pay for untaken statutory leave even if the worker is dismissed for gross misconduct, and Acas repeats it. The same applies to an employee who walks out without working their notice: the employer pays only for the time worked, but that includes any accrued untaken holiday.

Final pay: the regulation 14 calculation

On termination, regulation 14 requires a payment in lieu of statutory holiday accrued but not taken. Unless a relevant agreement sets another method, the formula is (A × B) − C: A is the annual entitlement, B the proportion of the leave year that has expired, C the leave already taken.

Example: a five-day-a-week employee on 28 days, leave year January to December, leaves on 30 June (day 181 of 365) having taken 10 days. 28 × 181/365 = 13.88 days accrued, minus 10 = 3.88 days to pay. At £600 a week, £120 a day, that is £466.20 gross, subject to income tax and National Insurance like any holiday pay. If the result is negative because the employee took more than they had accrued, the employer can recover the excess only under a written agreement made beforehand, the "payback clause" Acas describes; a deduction without it is unlawful. Days carried over from a previous year because of sickness, family leave or because the employer failed to give a reasonable opportunity to take them (regulation 13(14) to (18)) must be paid too.

Two newer obligations change what "getting it right" means. Since 6 April 2026, regulation 16B requires employers to keep records showing compliance with the holiday entitlement and holiday pay rules, in any format, for six years; Acas says these records must include payments in lieu of holiday when someone leaves, and that being unable to prove them could be a criminal offence enforced by the Fair Work Agency. And the Fair Work Agency is due to take on enforcement of statutory holiday pay from 2027, with the government consulting on penalties of twice the arrears per worker. A balance reconstructed from memory on someone's last day is no longer just a payroll risk. Which untaken days survive the year end and which are lost is covered in our guide on unused holiday, and a balance the employee can see all year, accrued, taken, pending and remaining, takes the argument off the table before it starts.

Garden leave and payment in lieu of notice: the difference for holiday

On garden leave the contract continues: the employee is paid as usual with all contractual benefits, holiday keeps accruing, and the employer can require accrued holiday to be taken during the garden leave by giving the regulation 15 notice or relying on a contract clause. That is the cleanest way to run a balance down, because the employee is not needed at work anyway. With a payment in lieu of notice the contract ends at once: the employer pays the notice period as a lump sum, nothing accrues after the termination date, and the holiday accrued up to that date is paid in lieu alongside. A contract that allows PILON should say so; without a clause or the employee's agreement, ending the contract early is a breach, even if the money is paid. Pay in lieu of notice, holiday pay and unpaid wages are all taxable and subject to National Insurance.

In the United States: the state and the policy decide

US employment is at-will in almost every state: either side can end it at any time, with no notice, subject only to contracts, collective agreements and anti-discrimination and whistleblower laws. Two weeks' notice is a custom, not a legal requirement. The Fair Labor Standards Act does not require paid vacation at all, nor any payout of unused time: the Department of Labor calls these "matters of agreement between an employer and an employee", and federal law does not even require the final paycheck to be paid immediately. The WARN Act's 60-day notice applies only to plant closings and mass layoffs at employers with 100 or more employees. Everything about vacation during notice therefore comes from state law and the written policy.

So the common US clause "PTO is forfeited if you leave without two weeks' notice" is enforceable in Texas or New York when it is in the written policy, and void in California or Colorado, where earned vacation is wages that cannot be forfeited. A policy that PTO requests during the notice period are at the manager's discretion is lawful everywhere, since even California lets the employer control when vacation is taken, but in payout states the untaken balance is simply paid instead. The Bureau of Labor Statistics counted 3.1 million quits in August 2026 alone, and Pew Research found that 46% of US workers with paid time off take less than they are offered, which means most leavers carry a balance to the exit. Check the state's labour department page before writing the policy, and apply the policy consistently.

The method for the employer, from notice to final pay

1. Date the notice and calculate the termination date from the contract or the statutory minimum, whichever is longer; notice normally runs from the following day.
2. Check holiday already booked in the period: it goes ahead unless cancelled with notice of at least its length, and it does not move the termination date.
3. Freeze the balance: entitlement accrued to the termination date (notice period included), carried-over days, days taken, requests pending.
4. Decide with the employee what happens to the remainder: taken during notice with the right notice on each side, required by the employer with twice-the-length notice or a contract clause, or paid in lieu. Put it in writing.
5. Plan the handover: who covers what, and when the colleagues who cover can take their own leave. A shared team wall chart shows the whole department's absences across the notice period at a glance.
6. Prepare the final pay: salary to the termination date, notice pay or PILON, holiday pay in lieu under regulation 14, any deduction for overtaken leave only under a written agreement, bonuses and commission unless the contract excludes them.
7. Keep the record: the regulation 16B file for six years, including the payment in lieu.
8. Close the accounts on the last day, keeping the absence history for payroll, the Fair Work Agency and any claim, for which the time limit is now six months.

How Bueggio HR handles an employee's last month

Bueggio HR is a leave and absence tracker, not a payroll system: it does not run the final payslip, but it gives payroll the exact figure to run it with and keeps the wall chart honest during the notice period.

• The exact balance, in one click. The per-person report shows entitlement, taken, pending and remaining for each leave type, pro-rated from the start date, with CSV export: that is the number for the regulation 14 calculation, without rebuilding it on a spreadsheet.
• Agreed holiday, booked by the manager. An approver can book leave on someone's behalf: days required or agreed during notice appear on the wall chart and come off the balance immediately, with a record of who did what and when.
• The handover in plain sight. The shared wall chart shows who is away during the notice period and who covers; a date lock on the critical weeks stops half the team booking leave at the same time as the person leaving.
• The export for payroll. The monthly absence export (HTML, CSV or PDF) hands payroll the exact dates and day counts of the last month, with each person's payroll reference and without personal notes.
• A clean exit. Deactivating the person cuts their access on the last day and keeps their absence history for reports and records; a GDPR export of their data and anonymisation are available at any time. And since billing counts only active users, the leaver costs nothing from the next day.

To choose a tool of this kind, the leave management software guide and the guide on how to track vacation time list the criteria; Bueggio HR costs €1.30 per user per month, with a free month, no card required.

Mistakes to avoid

• Telling a leaver to "use up" their holiday without the regulation 15 notice or a contract clause: the days are then owed in the final pay as well.
• Withholding holiday pay after gross misconduct or a walk-out: accrued statutory holiday is paid in every case.
• Deducting overtaken holiday without a written agreement made beforehand.
• Paying only SSP during statutory notice when the contractual notice is less than a week longer than the statutory minimum.
• Stopping accrual on garden leave, or continuing it after a payment in lieu of notice has ended the contract.
• Buying out statutory holiday mid-employment to tidy a high balance: the only lawful payment in lieu is on termination.
• Reconstructing the balance from memory on the last day, with no record to show six years later.

Frequently asked questions

Can an employee take holiday during their notice period in the UK?

Yes, in two ways. The employee can ask to take whatever statutory holiday they have left, giving notice of at least twice the length of the leave, and the employer can refuse with notice of at least the length of the leave. The employer can also require the employee to take holiday during notice, again with notice of twice the length of the leave, unless the contract says otherwise. Whatever is still untaken on the last day must be paid in lieu in the final pay.

Does an employer have to pay untaken holiday when someone leaves, even after gross misconduct?

Yes. Regulation 14 of the Working Time Regulations requires a payment in lieu of any accrued statutory holiday not taken by the termination date, and GOV.UK states this applies even if the worker is dismissed for gross misconduct. The only thing gross misconduct removes is the right to notice and notice pay. Deductions for holiday taken over the accrued entitlement are possible only under a written agreement made beforehand.

Does holiday still accrue if the employee is off sick or on garden leave during notice?

Yes. Holiday accrues from the first day of employment and continues through sick leave, family leave, garden leave and any holiday taken, because the contract is still running until the termination date. It stops accruing only when the contract actually ends, so a payment in lieu of notice that ends the contract immediately stops accrual on that day, while a worked or garden-leave notice period keeps adding days to the balance.

Methodology and sources

UK legislation: Working Time Regulations 1998, regulations 13, 13A, 14, 15 and 16B; Employment Rights Act 1996, sections 1, 86, 87, 88, 89 and 91. Official guidance: GOV.UK on taking holiday before leaving a job, booking time off, handing in your notice, notice periods, tax on termination payments and the Employment Rights Act timeline; Acas on asking for and taking holiday, pay during the notice period, how holidays affect final pay, garden leave and PILON, dismissals with and without notice, sickness and ending employment, statutory sick pay changes and tribunal time limits; Department for Business and Trade, holiday pay compliance and enforcement consultation (source of the tribunal-claim figures). United States: Department of Labor on vacation leave, the last paycheck and the WARN Act; California DLSE on vacation and final pay; Illinois Department of Labor; Montana Department of Labor; Texas Workforce Commission; New York State Department of Labor; Colorado Bar Association on Nieto v. Clark's Market; BLS Job Openings and Labor Turnover Survey; Pew Research Center. Rules change with every commencement order and the worked example is illustrative: for a decision with legal effect, check the current contract and have payroll validate the final pay.