Paying out vacation pay: what's the deal?

Paying out vacation money: what about exactly?

Most people will soon receive their vacation pay, also known as vacation allowance. By the month of June at the latest, all employers must have paid the vacation pay to the employees. In this article we would like to tell you more about this.

Right to vacation pay

All employees who reside in the Netherlands and have an employment contract are entitled to vacation pay. By law, employers must pay vacation pay over the period running from June 1 to May 31. Article 15 of the Minimum Wage and Holiday Allowance Act (WML) states that as a general rule, everyone is entitled to at least 8% vacation allowance on their gross wages. Exceptions to this are employees who earn more than three times the minimum wage: in this case, it can be agreed in writing that the employee receives no vacation pay or less.

Note that gross pay also includes commissions (remuneration for services rendered), such as performance bonuses, irregularity bonuses and overtime pay. Earnings on a special occasion, such as a thirteenth month and profit distributions do not fall under gross pay, in the sense of basis for vacation pay, and you do not have to pay vacation pay on these.

Did you know that...

• ... it is called vacation allowance by law while in practice we call it vacation pay or vacation allowance?
• ... it is actually incorrect to call the vacation allowance vacation pay? This is because vacation pay refers to the wage payment during vacation.
• ... the 8% vacation allowance may be deviated from by collective agreement? The collective bargaining agreement may state that there is an entitlement to more or less than 8% vacation pay or even no accrual at all.
• ... the collective bargaining agreement for Temporary Workers 2019-2021 states that the accrual is 8.33%?
• ... vacation allowance is usually paid at the end of May or the beginning of June? Article 17 WML states that due vacation pay must be paid in June at the latest. The collective bargaining agreement for temporary workers 2019-2021 even stipulates that this is no later than the first week of June, as shown in Article 29.
• ... that the law states that vacation pay must in principle be paid in June, but that employers and employees may also agree that this is done at another time? They must then agree to this in writing, as shown in Article 17 WML.
• ... when an employee leaves employment the accrued vacation pay and vacation allowance must be paid out?

Does Covid-19 change anything about vacation pay?

Vacation pay remains a mandatory component in the payment of wages, even during corona. If you use the current NOW (Temporary Emergency Measure Bridging for Job Retention), it includes an allowance for accrual of vacation pay. To estimate the amount of the allowance, you can use the Simulation NOW calculation tool.

How is vacation allowance tested during inspections?

During inspections, we test for the following standard points:

• The company must keep accurate, complete and timely payroll records. To this end, the company must ensure that:
  • 4.2.3.1.4.d) at the time the vacation allowance is paid, the sum of gross wages and vacation allowance for the previous period is at least 108% of the applicable statutory minimum wage.
  • 4.2.3.1.4.e) at the end of employment it can be shown that the accrued vacation allowance has been paid in full to the employee.

If C1 applies (companies that must apply the Collective Labor Agreement for Temporary Workers), we also test for the following standard point:

• 4.3.2.3.2) If the ABU Collective Labor Agreement for Temporary Workers has been declared generally binding, the company must comply with the applicable Collective Labor Agreement for Temporary Workers with respect to the provisions concerning the accrual and take-up and/or payment of the following reserves: vacations (above the statutory), public holidays and short-term absenteeism or special leave, as well as the reservation of vacation allowance.

The above standard points are assessed on the basis of a sample at each full inspection.