What about the all-in salary payment?

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Very often, we see employment agreements in which a salary is stated including holiday allowance (holiday pay) and vacation days. Often these are called ‘oproepovereenkomsten’ agreements; stand-by-contracts (also called: a contract of employment with deferred performance obligation). If the employee only works for a few hours a week, it is much easier to pay holiday pay and vacations days together with the monthly salary payment instead of paying these amounts once a year or to pay holiday days during the period the employee is actually on vacation. But is it permissible to pay a salary that includes holiday allowance and vacation days? This questions will be answered in the following. Firstly, I will discuss the salary which includes holiday allowance, secondly I will answer the same question for salary including holiday days.

Salary including holiday allowance

The Minimum wage and minimum holiday allowance Act (Wet Minimumloon en minimum vakantietoeslag) allows a (monthly) salary payment including holiday allowance, provided that this is clearly agreed in writing and does not violate any arrangement in an applicable collective agreement. Make sure that the arrangement is agreed upon in the employment contract and that the amount for holiday allowance is clearly specified separately on the salary slip.

Salary including vacation days

It is a whole different situation once it concerns salary including vacation days. The Court of Justice of the European Union ruled in 2006 (JAR 2006/84) that an all-in salary is - in principle - not allowed. In this ruling, the Court of Justice explicitly stated that ""European rules (Directive 93/104) oppose the payment of vacation days in parts distributed throughout the course of the year in question, along with payment of salary for work perfomed, instead of benefitting of these accrued vacation days, during the period in which the employee actually takes a vacation.""

This prohibition of (monthly) buyout of vacation days during the employment is intended to allow employees to truly rest from their work by taking vacation (the rest and recuperation function of normal pay during vacation). However, the Court also ruled that Article 7 of this European Directive does not oppose to vacation day payments distributed over the relevant working year, that are paid together with the salary for actual work performed, and not when the employee actually take a holiday, if they are paid in a transparent and understandable manner as a vacation days payment, and thus are settled with the employee's salary when he is taking vacation.

According to the European directive, our national law states that an employee cannot waive his claim for vacation days, in return for compensation for the duration of the employment contract. The employee who is still entitled to a claim at the end of his employment contract regarding holiday is however entitled to payment of the salary corresponding to this holiday period. It must be streesed that it is the aim that employees actually go on hopliday. This has to do with the recuperation function,as previously indicated, that the legislature has attached to it. The risk is that someone who receives his vacation days in cash on a monthly basis will not use his right to vacation because he will not receive any salary during his vacation and this employee will probably not reserve the amount for those days already paid by employer. The recuperation function will not be met this way.

Where are the limits when it comes to paying holiday days? In recent years, a number of court rulings have been given on this subject, including a dispute between a trade union and Albert Heijn. In this case, it was considered that the problem with regard to the said recuperation function for employees with a very small employment hardly plays a role (for example a zero-hour or stand-by contract calling for an employee for about 10 to 15 hours a month, which are often students). Therefore, under such circumstances, it can be allowed under conditions to pay the salary including holiday pay and vacation days.

The following criteria, according to which salary payments can be done including vacation days, can be distilled from the aforementioned case law.

• It should be the situation that there is very irregular (little) work (and the salary regarding the holiday is thus very low);
• The employee must, like any other employee, actually accrue vacation days;
• Actual vacation days must be taken up by employee; thus the employer should ensure a clear holiday regime and control thereof;
• The vacation days taken are registered by the employer as vacation days;
• The employer ensures that the vacation is actually taken up. Paying vacation days as an all-in salary should not result in that fact that the employee will no longer go on holiday and the employer may not impede the taking up of holiday;
• Finally, the employee may not suffer a financial disadvantage due to the system of the all-in hourly salary.

With regard to the employment contract, it is of course important that the salary including vacation days should be explicitly agreed upon in the employment contract, and on the basis of the previously discussed case law of the European Court of Justice, this amount should also be specified on the salary slip.

If an employer complies with these criteria, an all-in salary can be paid to an employee, which means that the employee will not receive any more payment when he actually takes up the holidays.