How to calculate the equivalent for unused vacation?


Payment of holiday allowance is the responsibility of every employer. The equivalent for unused vacation is paid only upon termination or expiry of the employment relationship. Are there exceptions to this rule and how to calculate the employee's leave equivalent?

Equivalent for unused vacation - when should it be paid?

Annual leave is a non-waiver benefit for an employee. In article 171 of the Labor Code, we can read that in the event of non-use of the leave due in whole or in part due to termination or expiry of the employment relationship, the employee should be paid an equivalent for the unused leave. Thus, for this benefit to be paid, two conditions must be met:

  1. the employee must have unused vacation,
  2. the contract must be terminated.

The employer cannot pay the equivalent for unused leave when the employee is in an employment relationship with him. It is possible only when the leave is not taken due to the expiry of the employment contract or its termination, and the parties do not plan to continue cooperation on the current terms. If the employee is entitled to outstanding leave and the employment relationship continues, the leave should be taken in kind. It is not possible to pay an equivalent in exchange for the employee not going on vacation. Such practices are incompatible with labor law and significantly undermine workers' rights.

Can I not pay my holiday allowance?

An employee with whom the contract has been terminated or if it has expired and who has not used all or part of the holiday leave, in principle is entitled to an equivalent payment. There is, however, an exception. This situation is dealt with in article 171.3 of the Labor Code, in which it can be read that the employer is not obliged to pay a cash equivalent if the parties (employer and employee) decide to use the leave in the next employment, provided, however, that the employment will be at the same employer, and the new contract will be signed immediately after the termination of the first contract.

Tripartite agreement and payment of the equivalent

The jurisprudence slightly broadens the scope of the agreement on the equivalent of holiday leave by the so-called tripartite agreement, in which there are three parties to the agreement: the employee, the then employer and the future employer. It is worth mentioning that the so-called the tripartite agreement is based on jurisprudence, and the labor law provisions themselves do not provide for the transfer of leave between two entities. Hence, such holiday transfer practices may be questioned by the National Labor Inspectorate during inspections.

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Equivalent coefficient for unused leave

To calculate the equivalent for unused annual leave, the equivalent coefficient is used, determined for each calendar year separately. It expresses the average monthly number of days to be worked in a given year. When calculating the amount of the allowance, the coefficient applicable in the year of the payment of the allowance is applied, even if it is the leave transferred from the previous year. The employee acquires the right to the equivalent on the date of expiry or termination of the employment contract and the indicator for the year in which he acquired this right is used. If the employee is employed on a part-time basis, the value of the coefficient is reduced proportionally to the working time.

The equivalent rate depends on the total number of non-working days in the average five-day working week in a given calendar year (Sundays, Saturdays and public holidays).

In 2021:

365 days - (52 Sundays + 52 Saturdays + 9 public holidays) = 252

252 days / 12 months = 21 → 2021 equivalent factor

Equivalent for unused leave - calculations

1. In order to calculate the amount of the employee's allowance, the basis of the employee's allowance must be established. It should take into account the average salary of an employee:

  • specified in a fixed monthly rate,
  • ingredients for periods not longer than a month,
  • ingredients for periods longer than a month.

Fixed remuneration is taken into account in the amount from the month of acquiring the right to the equivalent. If the employment relationship ends during the month, then the full monthly remuneration should be taken into account in the basis of the equivalent amount, and not its part determined for the actual period of employment. Variable remuneration components (bonuses, commissions) are taken into account for periods not exceeding a month, paid in the 3 months preceding the month in which the employee acquired the right to the equivalent, included in the average amount for this period.

Payments for periods longer than one month are also included in the average amount, but for the 12 calendar months preceding the month in which the entitlement to the equivalent is acquired.

2. To calculate the equivalent for 1 hour of unused leave, the basis of the equivalent calculation should be divided by the ratio of the equivalent, and then divided by the employee's daily working time standard (usually 8 hours).

3. The obtained result should be multiplied by the number of hours of unused leave.

Example 1.

The employee is employed for a trial period (3 months) full-time from January 1, 2021, on the minimum wage. The contract ends on March 31, 2021 and will not be renewed. The employee was entitled to 5 days of leave, of which he used only 2, for the remaining days he will get an equivalent for unused leave. The average working week is 5 days, 8 hours each.

1. Basis for calculating the equivalent: PLN 2,800.00

2. The basis should be divided by the factor:

PLN 2,800.00 / 21 = PLN 133.33

then divide the result by the daily working time standard:

PLN 133.33 / 8 hours = PLN 16.67

3. The equivalent for 1 hour of leave should be multiplied by the number of hours of unused days

unused vacation - 3 days, 8 hours each

PLN 16.67 x 24 hours = PLN 400.08 → amount to be paid

The provisions of the labor law do not provide for the necessity to align the base of the equivalent to the amount of the minimum remuneration for work, therefore, a situation in which the base of the equivalent is allowed is lower than the minimum wage.

The calculated equivalent for unused leave is at the same time the basis for calculating social security and health insurance contributions, as well as advance income tax payments.