The most common misconception on this topic concerns not the calculation, but the expiration. Many employees assume that vacation days from the previous year expire on March 31st and that anything older than that is lost anyway. Since rulings by the European Court of Justice and the Federal Labor Court, this is no longer universally true. Vacation days only expire if the employer has specifically requested that you take the vacation and informed you of the impending expiration. If this notification is missing, the entitlement accumulates over years and does not expire after three years.
When an employee is laid off, this becomes money. Any vacation days not taken by the last day of work must be compensated. In many cases, we're not talking about two or three days, but rather accrued entitlements from several years. This is why this claim is often overlooked during negotiations, yet it can significantly increase the severance payment by several thousand euros.
We are Smart Employment Law, a law firm with two offices in Hamburg specializing exclusively in employment law. We advise and represent employees, employers, and works councils. Because we also understand vacation accounts from the employer's perspective, we can quickly determine whether a statement is correct or if days are missing.
The most important information at a glance
- Compensation only upon termination: Vacation time may only be paid out if it can no longer be taken due to the termination of the employment relationship.
- Duty to inform: Without a request or notification from the employer, statutory leave does not lapse or expire.
- Year of departure: If an employee leaves the company in the first half of the year, the statutory leave is prorated by twelve; after that, it is granted in full.
- Calculation: The decisive factor is the average earnings of the last thirteen weeks before the holiday, excluding overtime pay.
- Deadline trap: The compensation is a monetary claim. Therefore, contractual or collective bargaining agreement limitation periods, often three months, apply in full.
- Unemployment benefits: The entitlement to unemployment benefits is suspended for the duration of the paid-off vacation.
When vacation time is converted into money
During an ongoing employment relationship, compensation for unused vacation time is prohibited. Vacation is intended for rest and relaxation and should therefore be taken, not paid out. An employer may not offer you the option of waiving your vacation in exchange for money, at least not for the legally mandated minimum vacation entitlement.
The entitlement changes upon termination of the employment relationship. If the vacation cannot be taken before the last day, a purely monetary claim arises. This applies regardless of who terminated the employment, i.e., in cases of resignation, dismissal by the employer, or a termination agreement.
The same applies when a fixed-term contract expires, even if there was no dispute. This is precisely where the claim is most often overlooked, because nobody thinks about settling accounts. Details on this type of contract can be found in the guide to... fixed-term employment contract.
How much vacation time you are entitled to in the year you leave the company
The statutory minimum vacation entitlement is twenty working days per year for a five-day work week. Many employment contracts and collective bargaining agreements stipulate more, often 28 or 30 days. This distinction is important for the year of termination, as the two phases are subject to different rules.
For statutory leave, the date of termination is crucial. If the employment relationship ends in the first half of the calendar year, the leave is calculated proportionally, i.e., one-twelfth for each full month of employment. If it ends in the second half of the year, the full statutory annual leave is due, even if you only worked until July. Therefore, someone who leaves on July 31st is entitled to the full twenty statutory days.
For additional leave exceeding the statutory minimum, the employment contract may stipulate a pro-rata calculation. Therefore, check the contract clause. If no such provision exists, the same rules apply to additional leave as to statutory leave.
One point in your favor: If you took more vacation in the year you left your job than you were entitled to, your employer cannot reclaim the vacation pay already paid. This only changes if your employment contract explicitly stipulates repayment for vacation days taken above the statutory minimum.
Here's how to calculate the compensation.
The basis for calculation is the average earnings of the last thirteen weeks before the start of the vacation. This includes basic salary, regular allowances, commissions, and benefits in kind. Overtime pay is not included. Reductions in earnings due to short-time work, work stoppages, or involuntary absence from work are disregarded and may not reduce the compensation.
Here's an example calculation: With a gross monthly salary of €3,900 and a five-day work week, the daily earnings are approximately €180, calculated over an average of 21.67 working days per month. With twelve outstanding vacation days, this amounts to roughly €2,160 gross. If additional vacation days have accrued from previous years because the employer never notified the employee of their expiration, this amount increases accordingly.
The compensation payment is subject to income tax and social security contributions. It is considered part of regular wages and is paid out via payroll, usually with the final statement. Check this statement carefully, as errors in the number of days are the most common reason for additional payment demands.
The misconception of expired vacation days
By law, vacation must be taken in the current calendar year; carrying it over to the following year until March 31st is only permitted for business or personal reasons. Since the rulings of the European Court of Justice, this rule is subject to an important condition.
The employer must fulfill their duty to cooperate. They must specifically request that you take your vacation and clearly and promptly inform you that the vacation will be forfeited if you do not request it. A notice on the intranet or a general statement in the employment contract is insufficient. If they fail to fulfill this obligation, the vacation will not be forfeited at the end of the year but will be added to your existing vacation entitlement.
The Federal Labor Court has applied this principle to the statute of limitations. The three-year limitation period only begins at the end of the year in which the employer issued the request and notification. Without such notification, it doesn't begin at all. Therefore, in cases of long-term employment, it's worthwhile to look far back. Search your records for requests to take vacation and for warnings about its expiration. If you find none, that's the crucial starting point.
Long-term illness: the fifteen-month limit
Employees who are unable to work for an extended period continue to accrue vacation entitlements. However, these entitlements expire if the incapacity for work continues uninterrupted, specifically fifteen months after the end of the respective vacation year, i.e., on March 31st of the second following year. This limit is intended to prevent entitlements from accumulating indefinitely. This is a crucial point for employees whose employment ends due to illness; see our guide on this topic. dismissal due to illness.
The distinction is crucial. The fifteen-month limit only applies in cases of continuous incapacity for work. If you were fit for work at any point during the vacation year and could have taken vacation, the employer's obligation to inform you is reinstated. Without a request or notification, the vacation entitlement does not expire even after fifteen months. This exact scenario is frequently handled incorrectly in payroll accounting.
When the claim may be reduced
There are cases in which a reduction is permissible. However, it does not happen automatically.
- Parental leave: The employer may reduce vacation entitlement by one-twelfth for each full month of parental leave. However, they must explicitly declare the reduction, either during or after the parental leave, not after the termination of the employment relationship.
- Short-time work: For periods of complete absence from work, the entitlement to vacation may be reduced proportionally because there was no obligation to work.
- Unpaid special leave: If the employment relationship is completely suspended, no new vacation entitlements usually arise for this period.
- Not eligible for reduction: Periods of incapacity for work, maternity leave, and paid leave of absence: Entitlements continue to accrue as normal during these times.
The order of events is crucial when it comes to parental leave. If the reduction was never explained, the full entitlement remains and must be compensated. We have compiled information on what to consider when applying for parental leave below. Applying for parental leave: Rights and deadlines summarized.
Part-time work, changing working days and mini-job
For part-time employees, vacation time is calculated not by hours, but by working days per week. Someone who works three days a week is entitled to twelve statutory vacation days per year, because twenty days for five working days correspond to the same rest and relaxation value. The daily rate for vacation pay is correspondingly higher, as it is based on earnings per working day.
You need to be careful if the distribution of working days has changed during the year, for example, from five to three days. In such cases, already accrued vacation time cannot be retroactively recalculated and thus reduced. For compensation purposes, the entitlement must be calculated on a pro rata basis. Even those in marginal employment are entitled to full vacation time, a fact that is regularly overlooked in small businesses.
Release from work and termination agreement: the dangerous clauses
Most claims are not lost through expiry, but through signature. You should be familiar with two common formulations.
First, the issue of being released from work. Your employer can release you from work, deducting any remaining vacation days, but this release must be irrevocable and the specific vacation period must be clearly defined. A revocable release from work does not fulfill your vacation entitlement because you could be called back at any time and therefore would not have a predictable period of rest. If your termination notice only states that you are released from work, your vacation time is generally not considered fulfilled.
Secondly, the settlement clause in the termination agreement or settlement. Phrases such as a statement that the vacation time has been taken in kind or that this agreement settles all claims arising from the employment relationship can completely eliminate the right to compensation. You can effectively waive any accrued compensation claim after termination. Therefore, calculate the outstanding vacation days before signing; see the relevant section for further information. Guide to termination agreements and on our site Have your termination agreement reviewed.
Deadlines: gone faster than the vacation itself
Herein lies the practical contradiction of this issue. The vacation entitlement itself is well protected by the notification requirement. However, as soon as it transforms into a monetary claim upon termination, the normal rules for payment claims apply.
This means that contractual and collective bargaining agreement limitation periods apply. Clauses stipulating that all claims must be asserted in writing within three months of their due date are very common. Anyone who only recalculates six months later loses a claim that was undoubtedly valid. Without a limitation period, the three-year statute of limitations applies, calculated from the end of the year in which the employment relationship ended. If you are simultaneously pursuing unfair dismissal proceedings, the claim for compensation should be asserted as a subsidiary claim; see our page on this topic. Unfair dismissal claim before the labor court.
Impact on unemployment benefits
One point that almost always comes as a surprise in consultations: Receiving holiday pay means that the entitlement to unemployment benefits is suspended for the duration of the paid-out holiday. Someone who receives payment for twelve days of holiday will not receive unemployment benefits for those days.
This usually doesn't result in a financial loss, as the severance payment is higher than unemployment benefits for the same period. However, it's important to know for planning purposes and for providing information to the employment agency. Include the severance payment in your application. Failure to do so risks requiring repayment. Regardless, register on the first day of unemployment to ensure all deadlines are met.
If the employer doesn't pay
If the payment is not received or is too low, the process proceeds in three stages. First, you must submit a written demand with a detailed calculation and a two-week deadline. Specify how many days are outstanding, which years they are from, and the daily rate you are applying. This precise calculation is crucial because a general demand may not meet the deadline.
If the employer does not respond, a claim for payment will be filed with the labor court. You can combine this claim with other outstanding debts, such as unpaid wages, commissions, or bonuses. In addition, employers owe default interest of five percentage points above the base interest rate, which you should include in your claim. The standard default compensation of forty euros does not apply in employment relationships. In ongoing unfair dismissal proceedings, the settlement is usually included in the agreement, which yields the quickest result.
Here's how to proceed
- Reconstruct vacation account: Compile the employment contract, vacation requests, pay slips and time accounts from the last few years.
- Search for clues: Check if the employer ever requested in writing that the employee take vacation and warned of its expiration.
- Check for exemption: Clarify whether it was irrevocable and whether the vacation was specifically designated.
- Calculate before signing: Convert the number of outstanding days into euros and include them in the negotiations regarding severance pay and the termination date.
- Claim in writing: Quantify claims within the exclusion period and demand them with a deadline.
During the negotiation regarding a Severance pay upon termination It is worthwhile to list the compensation separately. If it is included in the severance payment, you will pay social security contributions on it without the total amount increasing. You can find the basics of dismissal protection in the guide to... Protection against dismissal in employment relationships.
Frequently asked questions about remaining vacation days and vacation pay
Calculate remaining vacation days before signing
Vacation pay is the most frequently overlooked entitlement, often lost in the turmoil of a separation. We calculate your vacation balance, review your employer's statements, and determine your entitlement. If you have received a notice of termination or a settlement offer, Describe your case to us. The initial consultation with a brief assessment is free of charge, and we will get back to you promptly.
author
Raphael Lugowski
Raphael Lugowski is a specialist lawyer for employment law and has been advising employees, works councils, and staff councils in all areas of individual and collective employment law since 2016. His areas of expertise include: protection against dismissal, termination agreements, works constitution law, and employment law at the intersection of digitalization and AI.
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