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Calculate vacation pay and vacation allowance

Calculate vacation pay and vacation allowance

Vacation pay is the compensation that you, as an employer, pay to your employees when they take annual leave. Vacation allowance is what you pay when an employee ends their employment and for employment shorter than three months. The terms and conditions for annual leave and any advance leave must be set out in the employment contract.

Specific rules in collective agreements

If you are covered by a collective agreement, there may be special rules or calculation methods for vacation pay. So, you should always check what applies in your particular agreement. The agreements will also usually describe how to calculate employees' vacation pay.

How to calculate vacation pay

Vacation pay must be paid at the same time as annual leave. You may not pay vacation pay on a running basis during the year.

There are two ways to calculate holiday pay:

  • the same-pay rule
  • the percentage rule.

If your employee has a fixed salary, you can choose between using the same-pay rule or the percentage rule. In some cases, the same-pay rule may not be applied and holiday pay must be calculated according to the percentage rule.

How to calculate vacation pay for employees on a fixed salary (same-pay rule)

How to calculate vacation pay for hourly employees (percentage rule)

When an employee quits

An employee who quits is entitled to vacation allowance for:

  • vacation days earned during the current year
  • unused paid vacation days
  • saved vacation days from previous years.

For earned and unused paid vacation days for the current year, you calculate vacation allowance the same ways as you calculate vacation pay. Vacation  allowance for days carried over are calculated the same way as if they had been taken in the year in which the employee leaves. You must pay the vacation allowance as soon as possible and no later than one month after the end of the employment.

Vacation allowance for short-term employment

For employment of three months or less, the right to annual leave may be waived by agreement. Vacation allowance may then be paid in conjunction with salary, but must be listed separately on the payslip (i.e. it must not be incorporated into the salary itself).

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