An employee leaving your business does not always create a straightforward “last salary” calculation. Their departure may involve unused holiday, overtime, commission, notice arrangements or a payment agreed after the normal payroll cut-off. The safest approach is to reconcile each component and agree the instructions before processing final pay.
In this article
- Confirm the leaving date
- Review final pay and outstanding items
- Process leaving information through payroll
- Provide documents and retain records
Begin by separating the last day worked, the employment leaving date and the payment date. Those dates may differ. Payroll needs the right dates for the right fields, rather than one date reused throughout the record.
Build the final-pay instruction before removing access
Ask the responsible manager to confirm the departure arrangement in writing. Include the employee’s name and payroll identifier, leaving date, final pay period and the person authorised to approve adjustments. Capture timesheets and commission evidence while they are still accessible.
Then review the employee’s contract and the facts. A resignation, dismissal, redundancy and agreed settlement can involve different entitlements and tax questions. Payroll processes an approved outcome; it does not determine the legality of the departure or the wording of a settlement agreement.
| Final-pay item | What to establish |
|---|---|
| Salary or wages | Period covered and agreed partial-period method |
| Overtime or commission | Earned amounts, supporting records and payment timing |
| Holiday | Entitlement accrued, holiday taken and applicable calculation |
| Notice | Whether worked, paid in lieu or handled differently |
| Expenses | Approved reimbursement and separate tax review where needed |
| Deductions | Reason, authority and calculation |
| Termination payments | Nature of each component and appropriate specialist review |
Do not label the whole payment “redundancy” and assume one tax treatment applies. Ordinary earnings, notice payments and other termination amounts need to be distinguished.
Reconcile holiday carefully
Compare the holiday ledger with the employee’s actual entitlement and working pattern. Check the leave year, any approved carry-over and holiday already booked but not taken. The amount payable is not necessarily produced by multiplying unused days by a convenient average.
GOV.UK explains that employers must pay for untaken statutory holiday when employment ends. It also says deductions for holiday taken beyond entitlement require prior written agreement. Review the official leaving and holiday guidance alongside the employment terms.
Variable-hours arrangements and changes in hours can complicate the calculation. Keep the supporting calculation with the final-pay instruction so the result can be explained. If there is a dispute about entitlement, obtain employment advice rather than using payroll to impose an unsupported deduction.
Report the departure and issue the P45
For the usual current-tax-year departure, HMRC instructs employers to include the leaving date in the payroll record when they last pay the employee, report through the FPS and give the employee a P45. There are specific rules where the last payment and leaving date fall in different tax years. See HMRC’s employee-leaving guidance.
Follow the software workflow carefully. Accidentally creating a new payroll record to process a final adjustment can produce duplicated information. If the leaving date was wrong, HMRC’s guidance distinguishes correcting the internal record from reporting another leaving-date amendment.
Keep copies of the final payslip, approval, calculation and submission acknowledgement. Confirm how the employee will securely receive their documents after workplace email access closes. An inaccessible payslip portal can generate avoidable enquiries weeks later.
What if another payment becomes due later?
A later commission payment or bonus may require a payment-after-leaving process. Ask payroll to use the current HMRC instructions for deductions and reporting rather than restoring the employee as though they had rejoined.
HMRC explains the payment-after-leaving procedure, including use of the relevant indicator and written confirmation of the payment. It says not to issue another P45. The precise calculation can depend on the payment’s nature and timing, so provide those facts to payroll.
Also review whether any pension reporting or other provider records need updating. Closing a payroll record does not by itself confirm every connected process has been completed.
Illustrative example: a departure before commission is agreed
Imagine a sales employee leaves during the month. The employer has confirmed their salary and unused holiday but a commission amount depends on validating completed sales. This is an illustrative scenario, not an EPOS client result.
The manager provides the confirmed final-pay items and flags the commission separately, with the expected decision date. Payroll processes the approved departure correctly. When the commission is subsequently agreed, the business asks payroll to handle the later payment using the appropriate after-leaving procedure and to give the employee a clear payment statement.
The business retains both approvals and explains the timing to the employee. It avoids holding up undisputed pay simply because one item still needs investigation, while taking advice where payment obligations are uncertain.
Close the record, not the audit trail
Review the employee payment against the approved net pay and check the payroll journal is reflected in the accounts. Keep the remaining liability visible if a further payment is expected. Record who completed the P45, final documents and provider updates.
Retention is not a single rule for every document. HMRC’s payroll record guidance distinguishes PAYE records from records needed for minimum wage and statutory leave or holiday pay. Set an appropriate retention schedule and restrict access to former employees’ information.
For help coordinating departures, enquire about EPOS Accountancy payroll support. Share the leaving dates, pay arrangements and outstanding items so the agreed scope is clear. Employment disputes and specialist termination advice need separate confirmation. See pricing for fee information.