Pursuant to the provisions of the Labor Code, if the employment relationship is terminated or expires, the employee is entitled to a cash equivalent in lieu of accrued vacation leave or part thereof. The amount of the equivalent may differ depending on the year in which the right to vacation leave becomes vested in the employee. The obligation to pay cash equivalent in lieu of leave does not depend on the type of employment contract, duration of employment, or which party initiates the termination.
The detailed procedure for calculation of the cash equivalent in lieu of accrued vacation leave is set forth under the Regulation on Detailed Principles of Granting Holiday Leave, Determination and Payment of Remuneration for Time of Leave and of Cash Equivalent in Lieu of Leave (Journal of Laws 1997.2.14). Pursuant to the Regulation, the procedure for calculation of the equivalent in lieu of leave payable to an employee is as follows:
- Firstly, the pay providing the basis for the calculation, including both fixed and variable components, needs to be determined. The fixed components of pay represented by the fixed monthly rate are applied for the purpose of the calculation in the amount payable in the month in which the right to the cash equivalent becomes vested. The variable components of pay for periods of up to one month (for example overtime and nighttime pay) obtained by the employee in the period of three months immediately preceding the month in which the right to the cash equivalent becomes vested, are applied for the purpose of the calculation in the mean amount for the period of three months. The variable components of pay for periods of over one month (e.g. quarterly bonuses) paid to the employee in the period of 12 months immediately preceding the month in which the right to the cash equivalent becomes vested, are applied in the mean amount for the relevant period.
- Secondly, the special equivalent ratio needs to be determined, reflecting the mean number of working days in a month. The ratio is established separately in each calendar month. It is calculated by subtracting the total number of Sundays and public holidays in the relevant year based on the working time schedule in an average five-day working week from the number of days in the relevant calendar month and then dividing the resulting figure by 12. The ratio is calculated only for the calendar year in which the equivalent becomes vested in the employee, regardless of the years for which the employee is entitled to the accrued leave. In 2012, in the case of full-time employees for whom Saturday is a day off with respect to an average five-day working week, the ratio is 21. When calculating the cash equivalent for an employee employed part-time, the monthly average number of working days in a month is established in proportion to the working time laid down under the employment contract.
- The next step is to establish the equivalent for 1 day of leave. This is calculated by dividing the basis, being the sum of the various components of monthly pay, by the equivalent ratio.
- In order to calculate the equivalent for 1 hour of leave, the sum arrived at needs to be divided by 8.
- The last step is to calculate the equivalent in lieu of accrued vacation leave to which the employee is entitled. This is established as the product of the equivalent for 1 hour of leave and the number of hours of the employee’s accrued leave.
The date on which an employee becomes vested with the right to the equivalent in lieu of accrued leave is the date on which the employment relationship ceases as a result of expiry or termination. It is on that date that the equivalent needs to be paid to the employee. The amount of the equivalent is calculated based on the employee’s pay from the period directly preceding the month in which the employment relationship ceases, even if the employee is entitled to the equivalent in lieu of any leave accrued in the previous years of employment.