For many employers and employees, May is the month in which holiday pay is paid out. The main legal rule is that it should be paid in June. However, many collective labour agreements and/or terms and conditions of employment stipulate that it should be paid in May.
Holiday pay
Actually, what we mean is the holiday allowance (or -surcharge). The term holiday pay This refers to the pay that employees receive whilst on holiday. After all, the employer is obliged to continue paying wages on days off or leave.
The holiday allowance may seem like a bonus. But, of course, the employee actually sets aside part of their salary themselves to be paid out as a holiday allowance. The holiday pay must be paid out at least once a year. However, you may also agree that it is paid out weekly or monthly as part of your regular wages. At the end of the employment relationship, the holiday pay must be settled.
Employees are entitled to at least 8% in holiday pay. This is laid down in the The Minimum Wage and Minimum Holiday Pay Act. The collective labour agreement may stipulate that employees are entitled to a higher, lower or even no holiday pay at all.
It is also permissible to agree on a holiday pay rate lower than 8% in the terms and conditions of employment. However, this is only permitted for employees who earn more than three times the minimum wage. In all cases, an employee must earn at least 108% of the minimum wage applicable to them. Furthermore, the net amount remaining from this minimum wage must actually be paid to the employee via a bank transfer.
Of course, a higher holiday pay rate may be agreed. However, the collective agreement may put a spanner in the works.
The holiday allowance must be calculated on the basis of the employee’s total regular gross pay. This therefore also includes pay continued during the employee’s sick leave. And with effect from 1 January 2018 This also applies to overtime pay (unless the collective labour agreement contains different provisions). No holiday pay is accrued on, for example, end-of-year bonuses or profit-sharing payments.
Liquidity
The payment of holiday pay places a significant strain on the employer’s cash flow. After all, the net wages to be paid out that month are considerably higher than in other months. This must be taken into account in cash flow planning.
In the month following the payment of holiday pay, there is another significant drain on cash flow. This is because the employer must then pay the payroll taxes withheld from the gross holiday pay to the tax authorities.