Holiday allowance is a financial supplement paid to employees who receive paid leave. It amounts to at least 1% of the salary earned during the holiday accrual year and is designed to bridge the gap between paid leave and standard holiday pay. It is typically paid either at the time the holiday is taken or on fixed dates twice a year, usually in May and August.
But what exactly are the rules around paid leave, holiday allowance and taking time off? In this blog post, we cover everything employees and employers need to know about holiday allowance, so you can handle it correctly and confidently.
Who qualifies for paid leave?
To be entitled to paid leave, you must be employed on a monthly basis and have the right to full salary during public holidays and periods of illness. If these conditions are not met, you will receive holiday pay instead.
Accruing and taking holiday
For every month you work during the holiday year (1 September - 31 August), you accrue 2.08 days of paid leave, allowing for up to 25 days of holiday annually. Under the simultaneous holiday system, you can take holiday as soon as it's earned.
Once eligible, your holiday pay is equal to your usual fixed salary at the time the leave is taken. If you have benefits that you cannot use while on holiday, their value must be added to your holiday pay.
If you work on a commission basis, you must also be compensated for the commission you miss while on leave.
Minimum 1% holiday allowance
In addition to your regular salary during leave, you're entitled to a holiday allowance of at least 1% of your salary for the accrual year. This acts as compensation for the fact that paid leave is not entirely equivalent to receiving holiday pay.
Can the holiday allowance exceed 1%?
Yes. While the 1% rate is set by the Holiday Act, many employees receive a higher rate. Employers are allowed to offer more favourable terms than those legally required.
Holiday allowance is calculated based on all taxable earnings and benefits that form part of your remuneration. Need help understanding the holiday rules for your staff?
Holiday pay
If you don’t receive salary during your leave, you are instead entitled to holiday pay amounting to 12.5% of your qualifying salary for the accrual year.
Upon leaving a job, the employer must pay out any holiday pay due. This is transferred to FerieKonto, a holiday fund, or, in certain cases, retained by the employer if a specific agreement is in place.
How is holiday pay calculated?
- Holiday pay is based on several factors, including:
- ATP contributions
- National insurance contributions
- Employee pension contributions
- Taxable income
- The value of a company car, mobile phone and other taxable perks
- Salary paid during special holiday or freedays
The following are not included in the calculation:
- Paid holiday allowance or special holiday pay
- Salary received during holiday leave
When is holiday allowance paid?
Employers must pay the holiday allowance no later than when the associated holiday begins. However, many businesses opt to pay it twice yearly, in May (covering 1 September - 31 May) and in August (covering 1 June - 31 August), to reduce administrative workload.
If the allowance is paid before leave is taken, it cannot later be deducted from any holiday pay upon termination, unless a collective agreement permits it.
Upon resignation, the employer must pay out holiday allowance for any leave already taken that hasn’t yet been settled.
Need advice?
If you’re an employer seeking guidance on holiday matters or any HR-related issues, feel free to get in touch.