As an employer, from time to time you'll be faced with employees leaving the company and moving onto pastures new.
Whether they’ve worked their notice or if their journey with your company took an unfortunate turn that lead to dismissal, an employee is still entitled to receive the remuneration that they have earned whilst working for you, and you will need to calculate their final pay.
While the obvious basic formula for final pay is ‘salary vs. hours worked’, each case is different and a variety of factors can mean the calculation becomes a bit of a headache.
We’ve put together a guide to make calculating final pay a breeze and save you valuable time.
Before calculating final pay
Paying someone correctly is a legal requirement, so it’s important you get it right. But, before getting onto the numbers themselves, make sure you have:
Checked their employment contract for special terms on final pay
Taken into account any financial incentive schemes e.g. group/individual bonuses
How to calculate gross final pay
It isn’t often that an employee’s last day will fall exactly at the end of the month, so it’s likely that you’ll have to do a few sums to work out what they’re owed. Here’s how to calculate final pay for employees on different pay structures.
1. Calculate how much they earn in a day
Employee on a salary
Annual salary ÷ 52 (no. of weeks in year) = Weekly pay
Weekly pay ÷ 5 (or no. of days in working week) = Daily pay
For example, if the employee’s annual salary (before tax) is £25,000:
However, in some cases, an employee’s final pay packet may not be subject to National Insurance contributions (NIC) or income tax. A £30,000 cap applies to termination payments for instances including:
Settlement agreements and tribunal awards
Statutory and enhanced redundancy payments
Compensation for loss of employment
If during their notice period an employee does not need to be at work due to gardening leave, you'll still need to pay them as normal.
Final things to consider when an employee leaves
Now that you’ve issued an employee with their final pay, there are a few other things to consider before they depart from the company:
Final pay statement
The return of any company assets (e.g. computer, car)