Does holiday accrue during the notional notice period covered by PILON?

No. PILON ends the contract immediately. Holiday only accrues while the contract is in force, so no further accrual happens after the PILON termination date. Holiday accrued up to the PILON date must be either taken before or paid out as part of the final pay packet.

Is unused holiday paid alongside PILON or separately?

Separately, although both appear in the final pay packet. PILON is calculated from basic pay for the unworked notice. Holiday pay is calculated from accrued but untaken leave at the termination date, paid at the normal weekly rate. Both are taxed as earnings through PAYE.

How is the unused holiday pay figure calculated?

Take the annual leave entitlement (statutory minimum 5.6 weeks plus any contractual extras), pro-rate to the date of termination, subtract leave already taken in the leave year, multiply the remainder by the normal weekly rate. The holiday entitlement calculator on this site does this in one step.

Can the employer require me to take leave during a PILON notice?

No, because the contract has ended. The whole point of PILON is that employment terminates immediately. Once the PILON date passes you are not an employee and the employer cannot require you to take leave or do anything else. This is different from a worked notice or garden leave, both of which keep the contract live.

PILON and Holiday Pay (UK 2026): How They Interact

The basic interaction

PILON (payment in lieu of notice) terminates the contract on the date it takes effect. From that date you are no longer employed. Two consequences:

No further holiday accrues. Holiday accrual stops with the contract.
Holiday accrued up to the PILON date is converted to a cash payment in the final pay packet (where it has not been taken).

This is different from a worked notice (where holiday continues to accrue through to the final working day at the end of notice) and from garden leave (where the contract is still live and holiday continues to accrue).

Calculating accrued holiday at the PILON date

Three inputs:

Annual entitlement. Statutory minimum 5.6 weeks for full- time employees (28 days for a five- day-a-week worker, including bank holidays). NHS contractual entitlement is higher (27 days plus eight bank holidays rising to 29 then 33 days with service). Most professional UK contracts add 2 to 5 days to the statutory minimum.
Pro-rate to PILON date. Number of days from the start of the leave year to the PILON date, divided by 365 (or 366 in a leap year), multiplied by the annual entitlement.
Subtract leave taken. Days of leave already taken in the leave year before the PILON date.

The remainder is the unused holiday balance, paid at the normal weekly rate. The holiday entitlement calculator handles all three steps in one calculation.

Worked example: standard professional role

Employee on £4,500 monthly basic pay, 28 days annual leave (statutory). Leave year runs 1 January to 31 December. PILON termination on 15 June. Six days of leave taken so far this year.

Pro-rated entitlement to 15 June: (167 days / 365) × 28 = 12.8 days (round to 13).
Less leave taken: 13 − 6 = 7 days remaining.
Daily rate: £4,500 monthly ÷ 21.67 working days per month ≈ £207.66.
Holiday pay due: 7 × £207.66 = £1,453.62.

The £1,453.62 is added to the final pay packet and taxed as earnings through PAYE.

Tax treatment

Both PILON and holiday pay are taxed as earnings:

PAYE income tax at the marginal rate.
Employee National Insurance at the standard rates (8% on the band between thresholds, 2% above).
Employer National Insurance at 13.8% on the full value above the secondary threshold.

Neither benefits from the £30,000 tax-free allowance under section 403 of ITEPA 2003 because both are treated as earnings, not as termination compensation. For the full PILON tax detail see PILON tax.

If holiday has been over-taken

Sometimes an employee has taken more leave than they have accrued at the termination date. The employer can recover the overpayment from the final pay packet as long as the contract specifically allows it (most do, in the deductions clause). The recovery is subject to the deduction rules in section 13 of the Employment Rights Act 1996.

The amount recovered is the daily rate multiplied by the number of over-taken days. It is netted off the gross final pay before tax is calculated, so the employee benefits from any tax saving on the deduction.

Holiday entitlement above the statutory minimum

Many UK contracts and policies give more than the 5.6 weeks statutory minimum. The contractual extras can be treated differently in different situations:

Use-it-or-lose-it extras. Some employers cap the contractual extra at the end of the leave year and do not pay it out on termination. Read the contract.
Fully payable extras. Most employers treat the entire accrued entitlement (statutory plus contractual) the same way and pay it all out on termination. This is the more common position.

Where the contract is silent, the default is usually that the full entitlement is paid out. Where it specifies, the contract overrides.

Bank holidays during the PILON window

If your contractual entitlement is expressed as a number of days including bank holidays (28 days including bank holidays is the statutory minimum), a bank holiday that falls between the PILON date and what would have been the end of the unworked notice does not generate additional pay. The contract has ended; the bank holiday is not your employer’s problem.

This is different from a worked notice where the employee gets the bank holiday off (or paid for it if required to work).

NHS-specific

NHS staff have more generous annual leave than the statutory minimum (27 days plus eight bank holidays on appointment, rising to 29 then 33 days with service). The same PILON principles apply: holiday accrued to the PILON termination date is paid out in the final pay packet. The NHS-specific detail on resignation and final pay is at the NHS resignation guide.

Settlement agreements and holiday

Where PILON is part of a settlement agreement (often in a redundancy or exit context), the settlement letter should set out:

Accrued holiday at the termination date (in days).
The gross value of the holiday payment.
The tax and NI deductions applied.
The net payment included in the final pay packet.

See what is a settlement agreement? and the settlement agreement calculator for the broader settlement framework.

Useful calculators

Holiday entitlement calculator — accrued days at any date.
PILON calculator — gross PILON figure.
Final pay estimator — net figure for the final pay packet.
Settlement agreement calculator

Related guides

Frequently asked questions

Does holiday accrue during the notional notice period covered by PILON?: No. PILON ends the contract immediately. Holiday only accrues while the contract is in force, so no further accrual happens after the PILON termination date. Holiday accrued up to the PILON date must be either taken before or paid out as part of the final pay packet.
Is unused holiday paid alongside PILON or separately?: Separately, although both appear in the final pay packet. PILON is calculated from basic pay for the unworked notice. Holiday pay is calculated from accrued but untaken leave at the termination date, paid at the normal weekly rate. Both are taxed as earnings through PAYE.
How is the unused holiday pay figure calculated?: Take the annual leave entitlement (statutory minimum 5.6 weeks plus any contractual extras), pro-rate to the date of termination, subtract leave already taken in the leave year, multiply the remainder by the normal weekly rate. The holiday entitlement calculator on this site does this in one step.
Can the employer require me to take leave during a PILON notice?: No, because the contract has ended. The whole point of PILON is that employment terminates immediately. Once the PILON date passes you are not an employee and the employer cannot require you to take leave or do anything else. This is different from a worked notice or garden leave, both of which keep the contract live.

General information about UK PILON and holiday pay. Specifics depend on your contract and the figures in your payslip. For a binding figure on your situation, contact your payroll team or an accountant.