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Vacation compensation: What employers and employees need to know

Expert article in labor law

Vacation compensation: What I need to know as a lawyer and employee

Vacation compensation often raises legal questions in practice – for both employers and employees. As an experienced employment law attorney, I can advise you comprehensively on your rights and obligations regarding financial compensation for unused vacation.

On this page, you'll find all the important information about vacation pay—clearly explained and legally sound. I'll show you:

When employers have to pay holiday compensation
Under what circumstances exemption instead of compensation is possible
How holiday compensation is calculated for part-time or variable remuneration
Which deadlines apply to employees and employers
What to consider in the event of termination, illness and leave of absence

As an employment law attorney, I can assist you in enforcing and structuring your employment law claims related to vacation time. Contact me – I will provide you with personalized, expert advice.

What is meant by vacation pay and when am I entitled to it?

In principle, employees are obliged to take their statutory holiday entitlement “in kind”, which means:

They are granted time off from work with continued pay to recover or attend to personal matters.
This paid leave represents the legally prescribed form of vacation.

In certain cases, however, it is no longer possible to actually take the open vacation.

This is especially true if the employment relationship ends and the remaining vacation time can no longer be granted through time off.
In this situation, the so-called vacation compensation comes into play: the remaining vacation entitlement is then financially compensated.

According to Section 7, Paragraph 4 of the Federal Vacation Act (BUrlG), vacation compensation must be paid if the employment relationship ends and the remaining vacation time can no longer be taken. Example:

An employee still has 15 days of vacation left in mid-December.
At the employer's request, the employment relationship will be terminated at short notice by a termination agreement effective December 31st.
Since the employee still has remaining work to complete during this time, he can no longer take vacation.
The result: The remaining 15 vacation days must be compensated – the employee receives vacation compensation, which is paid out with the last payslip.

Do you have questions about vacation pay, or do you need legal assistance in enforcing or defending against claims? As an employment law attorney, I can provide you with expert advice—arrange a free, no-obligation consultation now!

Calculate vacation pay: How to correctly determine my entitlement

Anyone who can no longer take their remaining vacation time "in kind" due to the termination of their employment is entitled to financial compensation for their vacation. But how exactly is this calculated?

Essentially, the value of a vacation day corresponds to the value of a regular working day – after all, this day would also have been paid if vacation had been granted.
The formula for calculating vacation pay is:

Calculate your quarterly salary: Monthly salary x 3
Divide the quarterly salary by the number of working days in the quarter:

For a 5-day week: 65 working days
For a 4-day week: 52 working days
For a 3-day week: 39 working days
For a 2-day week: 26 working days

Multiply the daily value by the number of vacation days still remaining.
Example of a 5-day week:

An employee earns €4,200 gross per month. His quarterly salary is €12,600 (€4,200 x 3).
If you divide this by 65 working days, you get a daily value of €193.85.
If he is still entitled to 12 days of vacation at the end of the employment relationship, he is entitled to vacation compensation of €2,326.20 gross (12 x €193.85).

Vacation compensation for part-time employees

The calculation is made accordingly. The actual working days per week are decisive.
Example:

A part-time worker works 2 days per week and earns €1,600 gross per month.
The quarterly salary is €4,800 (€1,600 x 3).
If you divide that by 26 working days (assuming a 2-day week), you get a daily value of €184.62.
If there is a right to 8 days of unused vacation, the vacation compensation amounts to €1,476.96 gross (8 x €184.62).

Do commissions and variable remuneration belong in vacation pay?

Yes, variable compensation components such as commissions or bonuses must be included in vacation pay, as they are part of the regular salary.
Example:

A sales representative works full-time (5-day week) and receives a monthly base salary of €3,800 gross and an average of €700 gross in commission over the last three months.
Your relevant monthly salary is therefore €4,500 and your quarterly salary is €13,500 (€4,500 x 3).
If you divide that by 65 working days, you get a daily value of €207.69.
If the employee is entitled to 10 days of vacation, the vacation compensation amounts to €2,076.90 gross (10 x €207.69).

Would you like to calculate your entitlement to vacation pay or need legal assistance? I offer personalized employment law advice and help you enforce your claims. Schedule a free consultation now!

Priority of granting leave in kind: Under what circumstances is there a right to compensation for leave?

According to the Federal Vacation Act (Section 7, Paragraph 4 of the Federal Vacation Act), vacation should generally be taken in kind, meaning that the employee is granted paid time off and can recover. Vacation compensation is only considered if vacation in kind is no longer possible because the employment relationship has ended.

Granting vacation takes precedence over vacation compensation

An impending termination of the employment relationship does not automatically lead to compensation for any remaining vacation days.
The decisive factor is whether there is enough time to actually take the vacation.
Example:

An employer gives an employee notice of termination in December, effective June 30 of the following year.
The employee is still entitled to two weeks of remaining vacation time. The termination notice will irrevocably release the employee from work starting in early April, taking into account any remaining vacation entitlements.
Since the leave period lasts three months – significantly longer than the two weeks of vacation – the vacation entitlement is fulfilled by the irrevocable leave.
In this case, additional holiday compensation is not required.

No fulfillment through revocable indemnity

A revocable leave of absence is not sufficient to meet vacation entitlements.
The employee must be able to plan his or her vacation in a binding manner and actually use it for relaxation.
If he has to expect to be called back to work at any time, it cannot be called “vacation”.
In such cases, the right to compensation for vacation remains.
Example:

An employer gives notice of termination in October, effective December 31st, and releases the employee from November 15th.
The exemption reads: "The exemption is granted taking into account outstanding vacation entitlements and time off in lieu for overtime worked. Outside of the compensation of vacation entitlements, the exemption is revocable."
This wording is problematic: the employee does not know exactly when his vacation period begins or ends.
Since he must expect to be called away, the leave of absence is not suitable for fulfilling vacation entitlements.
Result: The full entitlement to vacation pay remains in place.

How to formulate a legally secure exemption

A clear and unambiguous release is essential to avoid legal disputes.
The differentiation is important because periods of illness during vacation affect the granting of vacation, while illness has no effect on the reduction of overtime.

Conclusion: Granting vacation has priority – but only if implemented correctly

When granting a leave of absence, I should pay close attention to which requirements are met and when.
Errors in the wording can lead to the employee being able to subsequently demand compensation for vacation.

Are you an employer seeking to legally grant time off or an employee seeking to enforce vacation pay? I can provide you with expert support as an experienced employment law attorney.

Vacation compensation in the event of illness, termination without notice, and longer absences: My rights at a glance

Employers and employees often agree, as part of a termination agreement or court settlement, to an irrevocable leave of absence to fulfill outstanding vacation entitlements. But what happens if the employee becomes ill during this leave of absence?

According to Section 9 of the Federal Vacation Act (BUrlG), if an employee falls ill during their vacation, the sick days are not counted towards their vacation entitlement.
This means that the planned granting of leave will not take effect and the outstanding leave days will remain.
If the vacation cannot be taken before the end of the employment relationship, there is a right to compensation for vacation.

Is the employer obliged to pay holiday compensation even after termination without notice?

Yes, even after termination without notice, the statutory entitlement to holiday pay remains in place.
Although termination without notice ends the employment relationship immediately, it does not change the fact that the employee is entitled to compensation for the vacation not taken.

Can the employer combine a termination without notice with the granting of precautionary leave?

No, this is no longer permissible since the decision of the Federal Labor Court of February 10, 2015 (9 AZR 455/13).
A precautionary grant of leave in connection with a termination without notice is ineffective because the employer itself contests the employment relationship at the moment of termination without notice and no longer pays remuneration.
However, effective leave is not possible without continued salary payment.

How much vacation pay is paid after a long illness?

Employees on long-term sick leave do not immediately lose their vacation entitlement.
The vacation days remain valid for a period of 15 months after the end of the respective vacation year.
After this period, they expire automatically.

Do you have questions about vacation pay or would you like individual advice? As an experienced employment law attorney, I am at your side to competently assist you and enforce your claims. Schedule a free consultation now!

What deadlines must be observed for vacation pay? An overview of transfers, exclusions, and waiver.

Many employees believe that unused annual leave automatically carries over to the next calendar year. Employers often tend to assume this as well—but legally, this is incorrect.

According to Section 7 Paragraph 3 Sentences 1 and 2 of the Federal Vacation Act (BUrlG), the statutory vacation entitlement generally expires on December 31 of the respective calendar year.

A carryover to the following year is only possible if urgent operational or personal reasons – such as a long illness – justify this.
In such cases, the leave remains valid until March 31 of the following year.

What I should pay attention to when terminating a contract

If I receive notice of termination with a longer notice period in the last quarter, I should definitely make sure to take my remaining annual leave in the current calendar year.
If a dismissal protection lawsuit is initiated, the employer can later argue that the vacation has already expired – and therefore there is no longer any entitlement to vacation pay.

Important deadline: end of March!

Even if there is a reason for carryover, the remaining vacation time expires no later than March 31 of the following year.
If the employment relationship is terminated after this date, the right to vacation and thus also the right to compensation are lost.

Is the claim to holiday pay subject to limitation periods?

Yes! The right to vacation pay may expire if the employment contract or collective agreement stipulates limitation periods.
These deadlines require that claims be asserted or sued in writing within a certain period of time after the due date. These deadlines are often two to three months.
The Federal Labor Court (BAG) has confirmed that limitation periods also apply to vacation pay (BAG, judgment of August 9, 2011, 9 AZR 352/10).

What does this mean for me as an employee?

I should pay close attention to the deadlines in my employment contract or collective agreement!
Anyone who does not register their claim in a timely manner will lose it permanently – even if the holiday compensation itself would be justified.

Would you like advice on your vacation entitlement or vacation pay? I will carefully review your employment law claims and consistently enforce them. Schedule a consultation now!

Social security contributions and taxes: What remains of the vacation pay?

Yes, vacation pay is subject to the same deductions as your regular salary. This means:

As an employer, I must withhold social security contributions (health, nursing care, pension, and unemployment insurance) as well as income tax and account for the payment accordingly.

The holiday compensation is therefore fully subject to social security contributions and tax.

This reduces the amount paid out to employees.

As an employer, I am obliged to calculate the taxes correctly and pay them to the relevant authorities.

Would you like to know how much your net vacation pay is, or whether your employer has correctly calculated it? As an experienced employment law attorney, I would be happy to assist you. Schedule a free consultation now!

What consequences does vacation pay have on unemployment benefits?

If you receive holiday pay at the end of your employment, this will have a direct impact on when you start receiving unemployment benefits.

According to Section 157 Paragraph 2 of the Third Book of the Social Code (SGB III), the entitlement to unemployment benefit is suspended for the duration of the compensated leave.

This means that no unemployment benefit will be paid for the days on which you receive or are entitled to vacation pay.
Important: This is not a waiting period, but a waiting period. Your total entitlement to unemployment benefits remains intact, but the start of payments is merely delayed.

If a new job begins during the suspension period, this may result in the full entitlement to unemployment benefit not being used.

The postponement of the start of the benefit then has the effect of a reduction.

Would you like to know how vacation pay affects your unemployment benefits or whether the calculations made by the Federal Employment Agency were correct? I offer comprehensive advice on labor law. Schedule a free consultation now!