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The Ins and Outs of German Vacation Time and Vacation Pay

As we approach summer many employers start to intensify their staff’s vacation planning.  Vacation regulations in Germany are not as straightforward as many employers might think.

Today’s blog therefore aims to provide a basic overview on German vacation rules for employers.

How much vacation pay and time are employees entitled to?

Starting off with the basics, German employment legislation already entitles an employee to a minimum vacation time after only one full month of employment. Surprisingly, the full annual vacation entitlement is gained after six consecutive months of employment. The statutory minimum amount of time off an employer must grant its employees is 24 working days per year, whereby a working day refers to a working week of Monday to Saturday. This means effectively that the vacation entitlement is four weeks, and thus the courts translate the vacation for employees on a normal five day week to a 20 day minimum vacation entitlement.

However, the amount of vacation an employee is entitled to is governed by the employer’s own collective agreements, contracts and policy, with a minimum amount prescribed under the mandatory employment legislation. As a standard, many employers provide five weeks’ paid vacation, and some as much as six weeks.

In terms of vacation pay, vacation pay shall be calculated from the average salary paid in the last 13 weeks before the vacation starts. When calculating the average salary, commission and other regular elements of variable pay will be included whereas overtime compensation, for instance, will not be taken into consideration. Vacation pay is defined as financial compensation during vacation and thus replaces the normal salary – for most contracts, vacation pay just equals the contractual monthly installments. Some companies even pay a surplus vacation allowance which is not based on statute but on contractual or collective bargaining and thus a voluntary benefit. 

When can an employee take a vacation?

Where a lot of confusion occurs, is if an employer has the power to instruct their employees when they can take vacation. While legally the employee has to request vacation which the employer shall grant, the practice is much easier: Simply, employers have the final say as to when an employee can go on their vacation, as long as their decision is based on operational requirements and needs.

Employers have the right to manage their business as they deem best, and that includes setting the hours of operation and assigning vacation time for employees. Of course an employee can ask for vacation on certain times in the year, and by law the employer shall try to accommodate the employee. If however the employer has valid business or operational reasons to request a different vacation term, this will be binding. Thus the final decision lies with the employer. The exceptions to this are where codetermination by a German works council applies, if an employee has a contract stating otherwise or if there is a workplace policy covering vacation time.  However, once an employer tells an employee he or she can take time off, the employer would be unable revoking the decision later on without very good reason.

In workplaces where the employees elected a works council, the way an employer goes about granting vacation time may be different. This will largely depend on the works council agreement entered into by the employer, which may include detailed rules for setting up a vacation schedule and how conflicting requests among employees shall be resolved.

Can a business close down for a week in the summer and have the employees use that as part of their vacation time?

Yes. A company can close down for a week or two and have the employees take that as part of their annual vacation. It is legal, simply because it is up to the employer when an employee takes their vacation.

If an employer wants to shut down for a week in July or at Christmas, or even for the weeks when the business owner is on vacation, the employer is entitled to require its employees to take their holidays during that time. Be sure to give the employees as much notice as is possible, to make sure they can make their vacation arrangements accordingly. 

However, one thing to remember is a happy employee is a good employee. Not allowing them to choose their vacation could have a negative impact on the company as a whole.

Are salaried workers paid vacation pay differently than those paid by the hour?

No. Because vacation pay is calculated from employees’ individual earnings, it does not matter if they are on salary or paid an hourly wage. Therefore, for workers that are paid a salary, most companies will simply pay them their regular pay amount. If a worker gets paid an hourly wage, than the pay during the last 13 weeks prior to vacation will be paid out as the vacation pay.

When employees go on vacation, just keep paying them their salaries. But what if one employee later claims that he/she should get a higher vacation pay?

As stated above, most companies pay their employees vacation pay as their salary, as this is what it equals out to. However, it is important to keep accurate records of vacation paid and make sure that it is listed on an employee’s pay records, in order to avoid problems down the line.

Proper vacation pay times must be kept. The general rule is that vacation pay is to be paid prior to the employee taking vacation unless otherwise agreed.  However, an employer can pay vacation pay by direct deposit at the same as its regular wages are paid, as long as the employer does so on or before the pay day for the pay period in which the vacation time falls.

If an employee is short on cash and would like to just take their pay as additional salary and not time off, is that possible?

No. Employees cannot simply say they do not want to take vacation time and receive vacation pay instead. Vacation has the purpose to ensure employees recover from the demands of work and remain healthy and have a balance to their private live. This cannot be waived against additional salary.

Part-time, seasonal workers and workers who don’t work a full year

All employees enjoy vacation rights under the Federal Vacation Act (Bundesurlaubsgesetz); it applies in particular to short time or marginal time employees, part time workers and as well to freelancers who have only one freelance job and thus depend economically from such freelance position.  Even if an employee has not worked for six months, the employer shall nevertheless allow the employee to take time off; however, vacation accrues with each month worked. After six months’ work, the employee gains the full vacation entitlement.   Since vacation and vacation pay is earned from the first month of work, employees who do not work a full year and do not take vacation in that period will receive paid for untaken vacation once they leave the company. At this point, the employer is required to pay out the vacation that they would have been entitled to take.

Part time workers who work fewer days per week on average than a full time worker will accrue proportionally fewer days of paid leave over the year. For example, an employee who works two days a week would be entitled to eight days’ paid holiday per year (based on the statutory minimum of 20 vacation days): (20 days : five days week) x two days worked per week = eight days per holiday year.

Where an employer offers an enhanced holiday entitlement of, for example, 25 days for full-time employees, a part-time employee who works two days a week would be entitled to 10 vacation days: (25 days : five days week) x two days worked per week = 10 days per year.

Can untaken vacation rights be carried forward to future years?

No. Employees shall take their vacation during the calendar year which is the relevant vacation year under German law. By law, all vacation rights shall lapse at the end of the year. Only if an employee has requested vacation and was told not to take it for business reasons or was unable to take it due to personal reasons, e.g. sickness, he shall be allowed to carry statutory vacation over into the new year. There is a legal obligation to use this vacation carried forward by the end of March of the following year at the latest. Vacation carried over and not used by end of March of the following year shall lapse without compensation.

However, there are the following exceptions: 

  • Long-lasting illness: The European Court of Justice and the Federal Labour Court have ruled that the mandatory vacation entitlement does not lapse, if the employee is not able to take the holidays during the calendar year or during the first three months of the following calendar year, due to a sickness. Under these circumstances, the employee will accrue the unused vacation days until he recovers and is able to use the vacation days. However, even these accrued vacation days will lapse 15 months after the end of the vacation year during which the vacation days were accrued.
    Taking this into account, the employee may be able to accumulate a substantial amount of vacation days in case of a long term sickness. As this only applies to the statutory vacation days and not the contractually agreed additional vacation days, it is advisable that employment contracts differentiate between mandatory and voluntary vacation days in order to mitigate the risk.
  • Parental Leave: If the employee has not taken all the vacation days to which he or she is entitled prior to the commencement of parental leave, the employer shall grant the remaining vacation days following the parental leave in the current or following vacation year. Furthermore, the employer is entitled to reduce the vacation to which the employee is entitled for the vacation year by 1/12 for each full calendar month for which the employee takes parental. This option does not apply if the employee works part-time for the employer during the parental leave.

In practice, however, many employers do not pay attention to vacation carried over and allow entitlements to accrue over years. Problems then arise when an employee wants to leave and makes a request for a substantial payout of untaken vacation. A further unwelcome effect is that vacation accruals have to build into the accruals of the annual balance sheet as well. As such, employers would be well advised to take care to tie up vacation accounts at least by the end of March each year, encouraging employees to take their vacation at convenient times during the vacation year.