Where an employee’s employment comes to an end before they have taken all of their accrued annual leave, they are entitled to receive a payment in lieu. How, however, is that payment calculated? And in what other circumstances does the rate of such a payment become relevant?
The Right to a Payment in Lieu
The pivotal provision governing the right to a payment in lieu of annual leave (ekwiwalent za urlop wypoczynkowy) is Article 171 of the Labour Code (Kodeks pracy). That article not only forms the legal basis for this entitlement but also regulates the detailed rules governing its payment.
First, the payment in lieu is due in respect of any leave not taken — critically, this refers to leave accrued with the particular employer in question (detailed information on this point is available in the most recent article on employment law).
Second, where a further contract of employment is concluded by the employee with the same employer, no entitlement to a payment in lieu arises.
Third, the payment in lieu is due regardless of the manner in which the employment contract is terminated; it may therefore be claimed even in cases of summary dismissal for gross misconduct or upon the death of the employee (in the latter case, the entitlement passes to the persons specified in Article 63(1) § 2 of the Labour Code).
How Is the Payment in Lieu Calculated?
This matter — which is strictly payroll and accounting in nature — is governed by a separate legal instrument, namely the Regulation of the Minister of Labour and Social Policy of 8 January 1997 on the detailed rules for granting annual leave, establishing and paying remuneration for the period of leave, and the cash equivalent for leave (Rozporządzenie Ministra Pracy i Polityki Społecznej z 8 stycznia 1997 r. w sprawie szczegółowych zasad udzielania urlopu wypoczynkowego, ustalania i wypłacania wynagrodzenia za czas urlopu oraz ekwiwalentu pieniężnego za urlop).
The calculation algorithm proceeds as follows:
- all monthly components of remuneration must be taken into account;
- variable components of remuneration attributable to periods shorter than one month, received during the three months preceding the calculation, must be included;
- components of remuneration attributable to periods longer than one month, paid during the twelve months preceding the calculation, must also be included;
- the total remuneration so obtained is divided by a coefficient representing the difference between the number of days in the given year and the number of Sundays, public holidays, and days off falling within that year, divided by 12;
- the resulting daily rate is then divided by the number of hours in the employee’s normal working day and multiplied by the number of hours of untaken leave.
This is not a straightforward exercise; accurate calculations require experience and appropriate tools.
Other Situations in Which the Payment in Lieu Rate Applies
Beyond the payment in lieu itself, the method by which it is calculated is also material in a number of other situations concerning the financial relationship between an employee and their employer. For example, compensation for unlawful termination of an employment contract (which may amount to a maximum of three months’ remuneration) is determined on the basis of calculations carried out in accordance with the rules applicable to the payment in lieu. It is accepted that the payment in lieu constitutes an appropriate reflection of the employee’s actual, overall remuneration — since it encompasses not only the basic salary but also various allowances, whilst excluding incidental or one-off components.