Is your business ready for vacation pay disbursements?

For any business, it is important to have a thorough understanding of the provisions for calculating and paying holiday pay. Mistakes can lead to financial loss and damage to the company's reputation. In Norway, employees are entitled to unpaid leave, which means they do not receive wages when they take a holiday. Therefore, employees do not receive wages when they take a holiday, but should receive earned holiday pay instead. This money is intended to cover the loss of income the employee experiences during the holiday.

What does the Holiday Act say?

The Holiday Act provides rules on how holiday pay should be calculated, when it should be paid, how long a holiday employees are entitled to, and when the holiday should be taken. The Holiday Act cannot be deviated from to the disadvantage of the employee. However, collective agreements may give employees better rights than the Holiday Act, and these must be adhered to if your business is bound by such agreements.

The holiday pay basis is calculated based on the employee's income from the previous year, known as the accrual year. The holiday pay constitutes between 10.2 - 14.3 percent of the holiday pay basis, depending on how long a holiday the employee is entitled to. Generally, the holiday pay is 10.2% of the holiday pay basis, and employees under 60 years of age are entitled to 5 weeks of holiday.

Holiday pay should also normally be calculated on commissions and bonuses, as they are considered a result of the employee's work effort and are therefore regarded as remuneration for work.

Employees over 60 years of age are entitled to a longer holiday and a higher holiday pay rate within certain financial limits, according to the Holiday Act and any applicable collective agreements.

If holiday pay is not calculated and paid in accordance with the Holiday Act and any applicable collective agreements, the consequences for your business can be very costly. You may end up having to pay holiday pay again to all affected employees.

Holiday pay cannot be paid continuously

It is important to note the Court of Appeal's ruling LA-2015-37805, where an employer had to pay holiday pay again to an employee because they had paid out holiday pay continuously during the accrual year as part of the monthly salary. This was in violation of the Holiday Act, which states that holiday pay should be paid when the employee takes a holiday, not the year they are earned.

Holiday pay should thus be calculated and set aside separately, and it is not permissible to include them in the salary. In this case, the employer was ordered to pay NOK 188,659 in holiday pay again to the employee and also had to cover legal costs of NOK 89,250.

Making mistakes can result in significant financial consequences, in addition to a loss of reputation for your business. It is therefore of utmost importance that you, as an employer, comply with the provisions on holidays and holiday pay.

Your business can avoid these problems by ensuring that you have a clear understanding of the rules for calculating and paying holiday pay. It may be wise to seek legal advice to ensure that you comply with all relevant laws and regulations. At the Sterk Law Firm, we have expertise in this field and can assist you with all aspects concerning holiday pay, ensuring that your business complies with all relevant provisions.