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How To Safely Substitute Annual Paid Vacation For Monetary Compensation


I recently ran into a situation where one of the company’s department heads did not want to take his yearly paid vacation. He was working on an important project, on which a lot depended, and he asked if he could somehow be monetarily compensated for the 28-day vacation time. At first I tried to make the case that he was obligated to take his vacation. According to Article 126 of the Labor Code, it is possible to monetarily compensate only any days beyond the 28-day minimum. When the department head began to insist, I explained that there are means by which vacation time can be substituted with monetary compensation which wouldn’t violate the current legislation.

Method #1: Recalling an Employee from Vacation

One way is to recall an employee from their vacation. The basis for this could be, for example, that a tax audit or inventory is being performed and anyone in the company who is accountable for the task at hand must be present.  According to Article 125 of the Labor Code, a recall from vacation can only be effective if both the employee and the company mutually agree upon it. The unused part of the vacation time can be added to blocs of vacation time in both the current and following year. However, the Labor Code does not allow pregnant women, minors, and those who work in particularly dangerous conditions to be recalled from vacation.

The Labor Code does not specify how to establish a procedure for recalling an employee from vacation. However, the company should have the corresponding documents showing that such recalls were performed. In order to avoid problems from the tax inspectorate, the company can ask the employee to write out a statement saying that they agree to the recall and “agrees to vacation recall” can be indicated on the employee’s vacation time sheet.

If an employee is recalled from vacation, the company will have to recalculate all of the employee’s previously allotted vacation allowance. From the total amount, the days that the employee did not take as vacation are deducted. For the days that the employee worked in place of vacationing, they will need to be paid. There is a drawback: the company will have to pay insurance premiums from these amounts, although for the employee, this is the most convenient option.

The company has the right to transfer the employee’s vacation to the following year. Article 124 of the Labor Code allows this when the vacation time unfavorably affects the company’s normal work. In this case, the company will need to justify the difficult circumstances to the tax inspectorate – to say, for example, that all of the employees in the department that the vacationing employee works in are sick and there is no one to there to get the work done.

Method #2: Take a Large Part of the Vacation on Weekends

Vacation time is offered to employees by calendar days so not only business days can be used as vacation days. Holidays are not included in the calendar days of vacation time as is stated in Article 120 of the Labor Code. Saturdays and Sundays are counted as calendar days and can be included in annual paid vacation time.

It is therefore convenient to use up an employee’s vacation days on weekends until all of their remaining vacation days are used up; this method is generally favored more by management. Although according to Article 125 of the Labor Code, one part of the vacation time must be at least 14 consecutive days, which means that only half of one’s vacation time can be used up on weekends.

Or it can be done more simply: let’s say that an employee can go on vacation for only one working week. They should write in their statement that they are taking the vacation not from Monday through Sunday, but from the Saturday of one week through the Sunday of the following, which turns out to be nine calendar days. This way, the employee gets more of their vacation allowance but is actually able to be at work more.

A couple of different methods can be combined as well. For example, an employee can declare that they are going on vacation for nine days, where four of them are weekends and the remaining five days can be broken up to be used on weekends, which comes out to 14 total days. The remaining half of the vacation can then be recalled. In other words, the employee goes on vacation on only one of the 14 remaining days.

Method #3: Dismissal and Rehire

Dismissing an employee and subsequently rehiring them is another method. If the employee is fired, then the employer is obligated to pay them compensation for all of their unused vacation time according to Article 127 of the Labor Code.

The employer incurs this obligation regardless of the reason for dismissal, whether or not it was the employee’s wish, downsizing, or a mutual decision between both sides. There is nothing which forbids firing an employee on Friday, paying them for the vacation time they are owed, and then rehiring them on Monday.

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