Vacation Liability: What to Review Before the Holiday Year-End
With the arrival of winter, many people have begun planning their Christmas holidays. As the holiday year-end approaches for many companies, it is an excellent opportunity to review whether employees’ vacation days have been taken as planned. It is also important to set aside time to plan for any remaining leave for employees who still have vacation days to use.
Failing to allow employees to take their vacation days or not complying with the Annual Leave Act and any applicable collective agreements may expose the organization to risks such as penalties, employee burnout, reputational damage, and a deteriorating work environment. In addition, accumulated vacation liability can represent a high cost for employers. Although there are opportunities to address this proactively during the summer period, situations may arise during the holiday season that affect employees’ ability to take their leave. For example, employees may become ill while on vacation and therefore be unable to take their planned leave, choosing instead to take it later in the year. For this reason, it is essential to review the vacation liability and current vacation balances well in advance of the holiday year-end.
We recommend identifying employees who were unable to take their vacation during the summer and mapping the reasons behind this. Plan their vacation leave during the remaining part of the holiday year.
Provisions of the Annual Leave Act
Under the Annual Leave Act, every employee is entitled to 25 days of annual leave. Employees should have the opportunity to take at least four consecutive weeks of leave during the period from 1 June to 31 August. Vacation planning should take place in consultation with employees, but in the event of disagreement, the employer has the final decision. It is advisable to familiarize yourself with the Annual Leave Act and its relevant provisions.
Employers are required to ensure that employees take at least 20 vacation days per holiday year. If an employee still has additional vacation days remaining after taking these 20 days, they have the right to save the remaining days for the following year. According to legislation, vacation days may be saved for up to five years, and in specific circumstances, they may be saved for an additional year.
However, there is a limitation regarding saved vacation days: an employee may not save vacation days during a year in which they also take saved days. This means that all paid vacation days for the current year must be taken before previously saved days can be used. It is important to note that the requirement to take at least 20 days applies only to paid vacation days, not unpaid or advanced vacation days.
Compensation for Untaken Vacation Days
A common question employers face is whether unutilized vacation days can be compensated financially. Often, there are employees who find it difficult to take their full 20 vacation days during the year. However, the law is clear: vacation is intended for rest and recovery and cannot be converted into monetary compensation. This rule applies regardless of an employee’s personal preference to receive their vacation in financial form.
There are, however, certain exceptions where vacation days may be compensated financially, for example:
- If an employee has been on sick leave for the entire year and has therefore been unable to take their vacation.
- If an employee ends their employment and has accrued or saved vacation days remaining.
- In the case of a fixed-term employment contract lasting less than three months.
It is also worth noting that saved vacation days are intended to be taken as leave.
Contractual Terms, Collective Agreements, and Internal Procedures
Although the Annual Leave Act forms the basis of vacation regulation, employers may, in certain respects, agree on different conditions with individual employees or be bound by a collective agreement that includes alternative provisions. It is important to remember that such agreements must always provide terms that are more favorable than the law; legal minimum standards cannot be weakened.
Our Recommendations
Ensure that you have internal procedures that support the regulations you follow. It is also advisable to have a routine for reviewing vacation balances after the main summer holiday period, so that a plan can be made for employees who may still have remaining vacation days to take.
Interested in learning more?
Jens Rönnholm, Operations Manager
P.+46 70 474 60 41