Vacation allowance is a hot topic in the month of May in the Netherlands; hot with the employees, as they are super enthusiastic, and hot with employers as they do not understand the sudden increase in employment costs. Orange Tax explains.

Vacation allowance was introduced in 1910 by the Dutch government. Employees around that time earned just enough income to pay for rent, groceries and the small joys of life, like the cigarette. There was no budget for an actual holiday. The vacation allowance was introduced to enable the blue-collar workers to enjoy a holiday.

How does vacation allowance work?

Your vacation allowance is built up during the employment period of June to May. 8 percent of your total gross salary over these months is paid out as a gross remuneration in the month of May or June.

How does the vacation allowance work for your employer?

Your employer’s payroll already takes into account this 8 percent for the vacation payout moment, which means that your employer does not actually have double salary costs in the vacation pay month. However, liquidity-wise, nearly twice the salary leaves your employer’s bank account.

What makes vacation allowance, vacation allowance?

Your employer could argue that in December, a 13th month is being paid, which equals the vacation allowance, hence there is no need to pay it again in May. Such an argument is not valid. Holiday pay is identified by law as an 8 percent remuneration paid in either the month of May or June. If a company decides to pay the vacation allowance in a month other than May or June, this allowance cannot be regarded to be your vacation allowance. The employees will still have a right to vacation allowance, next to this other allowance.

Some internationals are unfamiliar with the concept of holiday pay and prefer to have one-twelfth of the holiday allowance paid out monthly. That is possible if the signed employment agreement mentions that the holiday pay may be processed as such.

Just a reminder, you do not have to use your vacation allowance for a vacation. In fact, most employees use it for something else. Research has shown that most people use their vacation allowance to either pay outstanding debts or for larger purchases like a TV, scooter or things like that.

Orange Tax feels tax is just as exciting as vacation allowances. Are you not that excited about taxes, and are you having tax woes? See what their professionals can do for you!