There are a number of issues to consider in answering this question - what the Working Time Regulations says about paying holidays, what the "protection of wages" legislation allows employers to deduct from wages, and what your contract of employment says that your employer may do when you leave the employment.

Before reading this article further, you should first consider the FAQ Can my employer deduct money from my wages?

What do the Working Time Regulations 1998 say?
The Working Time Regulations allow all "workers" to take four weeks paid holiday each year. These statutory provisions apply to "workers", defined as employees and anyone else who works under a contract, other than a person who is self-employed. The rules also, therefore, apply to agency staff, trainees, apprentices, fixed-term workers and contract workers. As a result, this article will refer to "workers" rather than just "employees".

When a worker's employment comes to an end, the employer must pay any outstanding or "undertaken" holiday entitlement. This means that, if you have not taken all of the paid holiday that you have accrued so far in your holiday year, you must be paid the value of the undertaken holiday, calculated using your normal rate of pay, with your final wages.

Example: You are entitled to 20 days paid holiday in a full holiday year. You leave 9 months through your holiday year, having taken 10 of the 15 days that you have accrued. Your employer includes 5 days' holiday pay in your final wages.

However, the Working Time Regulations do not authorise the deduction of "overtaken" holiday entitlement, in other words, where you have taken and been paid for more holiday than you have accrued by the time you leave your job.

Example: You are entitled to 20 days paid holiday in a full holiday year. You leave 6 months through your holiday year, having accrued entitlement to 10 days holiday. However, you have actually taken and been paid for 15 days.

Your employer has no statutory right to deduct the value of the overtaken holiday. However, your employer may have a contractual right to do so. At this point, you should return to the guidance given in the FAQ Can my employer deduct money from my wages?

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