Holiday pay - how to calculate?
Annual leave is a period when the employee is not working. However, the employee for this period is entitled to remuneration for annual leave which he would have received if he had performed his duties. In order to pay the employee the correct holiday pay, it is necessary to take all the fixed and variable remuneration components.
Remuneration for annual leave - establishing the basis
When determining the remuneration for annual leave, we take into account the base salary and other benefits from the employment relationship.
When calculating the holiday pay base, you should remember to exclude some components from the employment relationship, namely:
- one-off or non-periodic payments for a specific task or achievement,
- remuneration for standby time and for downtime without fault,
- jubilee gratuities (prizes),
- remuneration for holiday leave, as well as for other justified absence from work,
- cash equivalents for annual leave,
- additional remuneration of legal counsels for legal representation,
- the amount of compensation to the remuneration for work up to the amount of the minimum wage,
- remuneration for the period of inability to work due to illness or isolation due to an infectious disease,
- awards from the company's bonus fund, additional annual remuneration, receivables due to participation in profit or in the balance surplus,
- retirement or disability severance pay or other severance pays,
- wages and salaries in the event of termination of employment.
A non-claimable discretionary bonus is not a component of remuneration for work. Consequently, it does not fall within the concept of holiday pay. The periodicity of the benefit is of secondary importance. However, if the award criteria are specific, the verifiable benefit may turn out to be a bonus, not a reward. When calculating the remuneration for annual leave, the non-claimable discretionary bonus is not taken into account. Other components that are included in the calculation of the base holiday pay include:
- bonuses to remuneration, e.g. internship, functional,
- regulatory bonuses,
- remuneration for overtime,
- allowances for work at night,
- remuneration for overtime work of part-time employees.
In a situation where an employee has a civil law contract concluded with his employer (contract of mandate or contract for specific work), it is not taken into account when determining the remuneration for annual leave.
Fixed components of remuneration and remuneration for annual leave
The components of the remuneration specified in a fixed monthly rate for the duration of the leave are paid in the amount in which they are due in the month in which the employee takes the leave.
An employee receives a remuneration consisting of fixed components specified in the employment contract, i.e. PLN 3,000 (basic salary) and PLN 200 of a functional bonus. In January, he was on holiday for 10 days. However, regardless of the number of days of leave used in the month in question, they will receive remuneration in the amount of - PLN 3,000 and PLN 200 of a functional allowance for January. Start a free 30-day trial period with no strings attached!
Variable components of remuneration and remuneration for annual leave
In the case of remuneration consisting of variable components, paid for periods not longer than one month, the basis for assessing this remuneration should be calculated.
The sum of the components paid to the employee in the period:
- 3 calendar months preceding the month in which the holiday begins,
- in no more than the 12 calendar months preceding the holiday commencement month, but only if the variable components differ significantly.
The remuneration for annual leave from the variable components is calculated by dividing the basis of the calculation by the number of hours during which the employee performed work in the period from which the basis was determined. Then, the remuneration for one working hour determined in this way is multiplied by the number of hours that the employee would have worked during the leave as part of normal working time, according to the applicable schedule, if he had not taken the leave at that time.
For variable components:
- determine the basis for the calculation of holiday pay for the period of 3 or 12 months preceding the holiday,
- specify the number of hours worked in the period used to determine the holiday base,
- set the rate for 1 hour of leave (the basis for the amount of leave is divided by the number of hours worked by the employee in the period from which the remuneration is determined),
- multiply the rate for 1 hour of leave by the number of hours of leave.
In January 2021, the employee was on a 10-day vacation. His base salary consists of a fixed amount of PLN 3,000, a functional allowance of PLN 100 and a monthly bonus which amounted to PLN 150 in October, PLN 200 in November, and PLN 250 in December. The employee was employed full-time.
Payment for annual leave is calculated as follows:
- the first two components (base salary and functional allowance) should be included in the amount due in the month of holiday use, i.e. in January - PLN 3,000 + PLN 100;
- the variable component, i.e. the monthly bonus, is taken in the total amount of the three months preceding the month of holiday use - PLN 150 (for October) + PLN 200 (per November) + PLN 250 (for December) = PLN 600;
- the amount of PLN 600 should be divided by the number of working hours of the employee per 3 months, that is by 504 hours »600 PLN: 504 = 1.19 PLN;
- the obtained result is multiplied by the number of hours that the employee would work during the leave in accordance with the applicable working time schedule, if he did not take the leave then »PLN 1.19 x 80 hours = PLN 95.20;
- for the period of the holiday leave, the employee should receive remuneration for variable components in the amount of95,20 zloty.
The salary is payable on the last calendar day. The salary that an employee is entitled to in January is: PLN 3,000 + PLN 100 + 95.20 = PLN 3,195.20.