At first glance, the payment of vacation hours seems like a simple matter of final settlement, but in practice, things often go wrong. Employers must not only determine how many vacation hours remain outstanding, but also what type of hours they are and at what rate they should be paid out. The basic principle here is that vacation is intended to be actually taken. Therefore, payment is not always permitted.
Vacation hours fall into two categories: statutory and non-statutory hours. Statutory vacation hours amount to a minimum of four times the weekly working hours per year. For a full-time position of 40 hours per week, this amounts to 160 statutory vacation hours per year. Hours of vacation leave in excess of the statutory minimum are all hours of vacation leave granted in addition to this, for example, based on the employment contract, collective bargaining agreement, or terms and conditions of employment.
In principle, statutory vacation hours may not be bought out during the employment relationship. Any agreement whereby an employee waives statutory vacation hours in exchange for payment is void. This prohibition does not apply to vacation hours exceeding the statutory minimum: these may be paid out during the employment relationship, provided there is a clear basis for doing so in, for example, the employment contract, a collective bargaining agreement, or a separate written agreement.
Upon termination of employment, all outstanding, unexpired, and not-yet-time-barred vacation hours must be paid out—both statutory and non-statutory. To this end, employers must promptly determine the employee’s vacation balance, including the year in which it was accrued and the applicable expiration or statute of limitations period.
Statutory vacation hours generally expire six months after the calendar year in which they were accrued. However, this expiration does not occur automatically if the employee has not actually had the opportunity to take the vacation, or if the employer has not clearly and timely notified the employee of the impending expiration. Court rulings indicate that employers have an active duty to inform employees in this regard. Vacation hours exceeding statutory requirements generally expire after five years, although collective bargaining agreements may stipulate shorter periods.
A common mistake made when calculating pay is to use only the base salary as the starting point. This is incorrect. During vacation, the employee must be in a comparable financial position to what they would have been in had they worked, so that taking vacation is not discouraged in practice. Depending on the compensation structure, other components must therefore also be included: structural allowances such as shift differential or commission if these constitute a substantial recurring part of the compensation, structural overtime, and fixed year-end bonuses or a thirteenth month’s salary. Pure expense reimbursements do not count. For variable compensation, a representative average over a reference period of twelve months is typically used, unless another period is more appropriate. It is particularly important for employers to keep their leave records in order and to distinguish between statutory and non-statutory hours, as well as the year in which those hours were accrued. Agreements regarding the payment of non-statutory hours should ideally be set out in writing. Furthermore, employers would be wise to inform employees in a timely and specific manner about outstanding statutory vacation hours and the possibility of their expiration. When calculating payment, one must consider not only the base hourly wage but also structural wage components and, where applicable, a representative average of variable compensation. Especially upon termination of employment, a clear, itemized final settlement prevents disputes later on