Leave pay payout — calculating accrued leave on termination
When employment ends, the BCEA requires the employer to pay out every day of annual leave the employee has accrued but not taken. It is not optional and cannot be forfeited. The calculation is straightforward once you know the daily rate and the correct accrual, but the tax treatment and source coding trip up many payrolls.
Payroll Africa Editorial · SARS Payroll Compliance Team
The Payroll Africa editorial team is composed of registered tax practitioners, payroll administrators and BCEA specialists who maintain the SARS PAYE, UIF, SDL and ETI engines that power the platform. Every article is reviewed against the current SARS BRS and Basic Conditions of Employment Act before publication.
- SARS registered tax practitioners
- SAPA-affiliated payroll administrators
- BCEA and LRA compliance reviewers
Last updated 26 Aug 2026
The BCEA leave payout rule
Section 40 of the BCEA obliges the employer, on termination, to pay the employee for any annual leave that accrued in the current and previous leave cycles and was not taken. Section 20(4) prohibits paying an employee instead of granting leave during employment — encashment is a termination-only event, apart from the portion above the statutory minimum where a contract allows it.
- Payout is compulsory on termination, whatever the reason
- Covers accrued and untaken annual leave, not sick or family responsibility leave
- Leave may not be bought out during employment below the BCEA minimum
- Untaken leave from a completed cycle may not simply be forfeited
- Include it in the final payslip, not a separate cash payment
How to calculate the payout
For a monthly-paid employee, the daily rate is monthly salary × 12 ÷ 365 × 7 ÷ 5 for a five-day week — or, more simply, monthly salary ÷ 21.67 working days. Multiply the daily rate by the number of accrued days outstanding.
Accrual is either 21 consecutive days (15 working days on a five-day week) per annual cycle, or one day for every 17 days worked. Pro-rate the current cycle by the months of service completed.
- Daily rate = monthly salary ÷ 21.67 (five-day week)
- Accrual = 1.25 working days per completed month, five-day week
- Pro-rate the incomplete cycle by months worked
- Deduct any leave taken in advance
- Use the rate at termination, not the rate when the leave accrued
Tax on leave pay
Leave pay is ordinary remuneration, taxed at normal PAYE rates and reported under source code 3605 (annual payment) or 3601 depending on how it is structured. It is not a severance benefit, so no tax directive is needed and the R550,000 lump sum exemption does not apply.
Because leave pay lands as a once-off, mark it as a non-recurring payment so the payroll does not annualise it and over-deduct.
Final pay checklist
A final payslip usually combines pro-rata salary, leave payout, notice pay if not worked, any pro-rata bonus owed, and severance where retrenchment applies. Deductions for outstanding loans or unreturned assets need written consent under section 34 of the BCEA.
Payroll Africa produces the termination pay run automatically: it calculates accrued leave to the last day, applies the correct source codes, handles notice and severance, and generates the UI-19, service certificate and IRP5 data.
- Pro-rata salary to the last working day
- Accrued leave payout
- Notice pay if notice is not worked
- Severance where retrenchment applies (needs a directive)
- UI-19, UI-2.7 and certificate of service
Frequently asked questions
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