What to do when an employee leaves

When an employee resigns, you must ensure you get written confirmation of the resignation and date. Make sure you get a Resignation letter from your employee. This will help you avoid disputes over the exact date of the resignation and the start of any notice period.

If your employee was dismissed, you should use the following dismissal letters as written confirmation of the employee leaving the business, which includes the date of dismissal and any notice periods. Which letter to will depend on your situation:

• Gross misconduct letter
• Dismissal letter for misconduct
• Dismissal letter for poor performance
• Dismissal for redundancy letter
• Dismissal letter for employees without unfair dismissal rights

You will also need to decide whether the employee should work their full notice period. It may be appropriate to pay the employee in lieu of all or part of their notice period. Payments in lieu of notice (PILONs) are generally used if you are dismissing an employee and do not want them to attend work during their notice period. This can be because of concerns about ongoing access to confidential information or business contacts or fears about disruptive behaviour. However a PILON can only be used if the contract of employment states that a PILON can be made. For further information, read Payments in lieu of notice.

If you want the employee to work their full notice period you should ensure that you confirm the right notice period. The contract of employment will usually state what the notice period is. If the contract doesn't say anything about notice periods, the statutory notice period will usually apply. For further information, read Notice periods.

If you do not want an employee to attend work during their notice period but also do not want to release them to start a new job (eg because they’re joining a competitor and you wish to restrict access to information and contacts), you can consider placing them on garden leave. Garden leave is when a departing employee is required to stay away from work during their notice period. They remain an employee during this period but do not perform services. Generally, unless the employment contract states otherwise, the employee should continue to receive all normal salary and benefits during garden leave. An employee can only be placed on garden leave if  the contract of employment expressly states this, or if the employee agrees to it in advance. For more information, read Garden leave.

When an employee leaves you must give them:

• any outstanding pay (which includes overtime)
• pay in lieu for any untaken holiday
• bonus payments (if applicable)
• any statutory sick pay (if the employee is entitled to it)
• pay instead of notice if you do not want them to work their notice period (remember that the contract of employment must provide for this, otherwise the employee must agree to it)
• redundancy payment (if a redundancy situation has occurred)

If the worker leaves before or during their statutory maternity or adoption pay period, you must also start paying (or continue to pay) them statutory maternity or adoption pay.

This should be detailed in their final payslip.

You need to tell HM Revenue and Customs (HMRC) when one of your employees leaves or retires, and deduct and pay the right tax and National Insurance.

You should put the employee’s leaving date on their payroll record and make deductions as normal when you send your next Full Payment Submission (FPS), unless you’re paying them a company pension.

You must also give the employee a P45. If your payroll software doesn’t automatically produce P45s you can order copies from HMRC.

If you use HMRC's Basic PAYE Tools (BPT) read Update Basic PAYE Tools when an employee leaves.

When employees leave, it's a good idea to arrange an exit interview. You can then use their response to determine whether there are any underlying issues that need to be addressed.

Some questions you could ask include:

• What have you enjoyed the most/least about working for the business?
• What problems have you found?
• How well did you understand your role?
• How effective is the communication in the workplace?
• Do you feel your work was valued?

Ideally, someone other than the departing employee's line manager should conduct this interview. This may be done by an HR manager or the managing director of the business.

You should also look out for reasons that might lead to employees claiming constructive dismissal or discrimination. If there is a risk that discrimination or an unfair dismissal has occurred, you should try and resolve these issues before the employee leaves. For further information, read Unfair dismissal.

The law doesn't generally require you to give a departing employee a reference unless stated otherwise in their contract or the employee works in certain regulated industries (eg financial services). It is, however, considered good practice to ask whether departing employees want a reference. You can use a Reference letter for this purpose. You should make sure that any reference given is true, accurate and a fair representation of the person. If the reference is misleading or unfair, an ex-employee could bring an action against you for libel, discrimination or defamation of character. For further information, read Defamation.

The leaving employee may be able to gain access to a reference if they make a subject access request to their new employer. This is because employees are entitled to make a subject access request to view personal data that their employer holds about them. This may also include a reference given by past employers. Therefore, when providing references, employers should also be cautious about providing or processing information which is unnecessary or discriminatory such as sexual orientation, religion or age.

For further information, read Employee reference letters.

If you issued any company property to employees at the start of their employment, you should ask for these to be returned. This includes retrieving security passes, uniforms, laptops or company mobile phones. You may also want to consider changing computer codes and passwords.