In the past it was relatively easy to determine holiday pay (vacation wages). In general, this amount was equal to the basic wage plus the holiday allowance. Nowadays, when employees can receive many more types of rewards, the question becomes whether all of these should be paid during the holidays and at the end of the employment contract. For example, consider a bonus or a car allowance. Should these be included in the calculation of the holiday pay?
This post was reviewed and updated on 17 July 2020
General assumptions about holiday pay
First of all, I list the general principles that apply to each type of holiday that is contractually agreed:
- The holiday pay includes the basic wage plus the holiday allowance.
- Furthermore, all components that are directly related to the employee’s activities should be included in the calculation of holiday pay.
- Incidental expense allowances are not included in holiday pay.
Unfortunately, the law does not offer many extra guidelines for determining holiday pay. However, the judiciary does offer some guidance. Below I discuss – in response to case law – 5 components that you should or should not include when calculating holiday pay.
1. Thirteenth month / year-end bonus
Case law is clear about the thirteenth month. The thirteenth month is part of the holiday pay. This also applies to a fixed year-end bonus.
2. Weekend services
If an employee receives structural allowances for irregular, evening, night and weekend shifts, you must also include these in calculating the holiday pay. The court of appeal has determined that this also applies even if it is contrary to the applicable collective labour agreement.
In general, judges rule that bonuses are also a component of the holiday pay. A bonus can be linked to all kinds of variables, such as the performance of the organisation, the employee or a combination thereof. The case law is not clear about the period that must be designated to determine the average level of such bonuses. Such periods vary between three and six years.
4. Car allowance
A car allowance is normally also considered as part of the holiday pay. However, the case law is not clear about whether a lease car (with or without private use) is part of the holiday pay.
5. Pension premium
Judges also rule differently about the employer’s portion of the pension premium. In some situations this is seen as part of the vacation pay, but in others it is not.
Although case law is consistent on some components of holiday pay, it gives a mixed picture for the other components mentioned above. Ultimately, it is up to the court to assess what falls under the holiday pay in the specific situation.
If you have a question about this blog, please feel free to contact me.