Job loss can be an unexpected event for many employees, and rarely do individuals perfectly time their remaining vacation days with an impending termination. Questions naturally arise: What happens to unused holiday pay when employment ends? Does it disappear, can you still use it, transfer it to a new employer or receive it as a payout? What if a “leave of absence” is proposed or accepted? While the rules on unused leave on termination of employment in Germany are similar to those in other countries, there are differences in the details. We will answer some of these questions in this article.
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What happens to your holiday when your employment is terminated?
Are you entitled to your holiday (pay) if you’re let go from your job in Germany? When an employer terminates a position routinely, the employment relationship ceases post notice period. Occasionally, severance agreements (termination contracts) may contain clauses about vacation entitlements. However, in some instances, employers may deny vacation in light of a dismissal, which isn’t entirely lawful. Generally, neither an ordinary termination nor an immediate dismissal revokes your vacation rights. By default, the employer is bound to permit the exiting employee either to take the unutilised holiday or provide compensation – on top of your severance pay.
How to determine your residual vacation pay when your contract is terminated?
The main determinant of this is your employment contract. The legal holiday allowance merely sets a minimum standard, which most contracts surpass. In accordance with the German Holidays Act, employees working a five-day week are entitled to a minimum of 20 vacation days (less if you work part-time). However, this is just the bare minimum. Many employment contracts (or collective agreements) offer significantly more – often up to 30 days.
A noteworthy exception applies to new employments. As per law, an employee’s holiday entitlement does not kick in until six months into the job. If conflicts between the employer and employee arise during this initial six-month period, often termed as the “trial period”, and termination notice is given during this time, this exception becomes particularly significant.
What becomes of unused holiday leave?
Like many countries, Germany affords its employees a legal entitlement to compensation for unused vacation days following termination. Employees who have only utilized a proportionate smaller part of their holiday entitlement have the options to:
Transport their leftover holiday allowance to their subsequent employer or Obtain financial compensation for the unused vacation days. The majority opt for the latter. The payout for unused leave upon termination is based on the employee’s “standard” earnings. This general principle operates in Germany as it does in most countries, albeit with minor differences in execution. As per German law, the calculation of holiday pay is dictated by the German Federal Holiday Act (BUrlG). Section 11 of the Act stipulates that holiday pay is derived from the remuneration due to an employee before their annual leave.
Therefore, an employee’s monthly salary must be broken down into a daily or hourly rate, depending on whether the work hours are fixed or flexible. This rate is then multiplied by the number of actual work days or hours the employee would have worked. Nonetheless, employer and employee can mutually agree to diverge from these rules – the same applies for collective bargaining agreements and other group or individual contracts.
Contrarily, when an employee has utilized more than their proportional holiday entitlement upon termination, in Germany, the employee is generally not obligated to repay the former employer for the “extra holiday”. In theory, while transitioning to a new employer, the employee’s holiday entitlement could be slightly reduced because these days were already consumed. However, this is a relatively rare occurrence.
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What happens to the remaining holiday time when an employee is “released from duties”?
When terminating an employment contract, it’s common for employers to “discharge” the employee from their duties, meaning the individual is no longer required to report to work, yet continues to receive their salary until the employment officially ends. Both parties usually find a “leave of absence” beneficial.
However, there are instances where the terms of the discharge are ambiguously defined. For instance, employers may not adequately clarify if the discharge period is supposed to account for the remaining holiday entitlement. In such a scenario, the employee may rightfully request a payout of the unused leave, atop the severance pay, when the employment terminates. There are numerous legal intricacies to maneuver here, thus it’s advisable to consult a labour law expert.
Explicit arrangements are necessary
For a termination, it’s imperative to establish coherent terms. If an employer merely states that the employee is discharged, offered a leave of absence, or suspended until the notice period concludes, it implies a ‘reversible’ discharge. The right to vacation remains unless explicitly dismissed in an ‘irreversible’ agreement. In a reversible discharge scenario, the employer may request the employee to resume work. The employee would then be obligated to fulfil their duties, thus creating uncertainty over plans such as going on holiday. If the employer definitively and irreversibly discharges the employee (accommodating any remaining holiday rights), the employer concedes their right to further employ the individual. Consequently, any residual vacation days would be balanced out and ineligible for compensation.
Can you choose money instead of holidays?
There’s no blanket right to a payout for your remaining holiday duration. Only when it becomes impracticable to grant the residual holiday (either wholly or partially), an opportunity arises for vacation pay upon employment termination. Section 7 of the Federal Holidays Act grants employees this right if, when the employment ends, there are still untaken vacation days that can no longer be used. For instance, this may occur if the employer and employee agree to terminate the contract immediately, rendering a vacation impracticable.
The law prescribes the exact amount, based on average earnings over the 13 weeks leading up to the start of the holiday. Extra payments for overtime, for instance, are excluded from this calculation, while other fluctuating compensatory elements are included. We recommend collaborating with a German labor law expert to calculate the exact amount.
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