A company’s holiday liability constitutes a large part of its total payroll costs, which is why it’s important to record holiday on an ongoing basis as changes in the holiday pay liability can have a direct impact on profits. By setting a clear strategy and guidelines for holiday liability, you increase your control over and reduce the risk of unnecessary surprises.
What is holiday liability and how is it settled?
Holiday liability is the liability an employer has to its employees. It amounts to the value of its workforce’s outstanding paid and saved days of holiday. The right to holiday is regulated in the Swedish Annual Leave Act, which also regulates the right to holiday pay. The act is a protective act that requires employers to ensure that their employees take at least four weeks of holiday per holiday year, provided that it has been accrued. However, the act is to some extent dispositive, which means that deviations from it can be negotiated by way of agreements. Nevertheless, deviations from the act may not result in worse conditions for employees than the minimum requirements stipulated in the act.
For employers that have signed collective agreements, the terms of holiday and holiday pay are, as a rule, regulated in the respective agreements. For employers with no collective agreements, the regulations of the act serve as the minimum requirements.
Decreases and increases in holiday liability
Holiday is accrued as the employee works and when they take leave of absence that qualifies for holiday, such as illness, when caring for children, and when on parental leave for a limited period. As employees accrue their holiday, the company’s holiday liability increases. As employees take the holiday they have accrued, the company’s holiday liability decreases.
This means that it is common to see an increased holiday liability during some months of the year when absence due to holiday is generally low. The opposite is then true during the usual holiday months. Holiday liability also decreases when an employee’s employment ends and they receive their final salary, including any outstanding holiday.
Keeping track of holiday liability
Although many companies state the costs recorded for their employees’ accrued holiday, there can be an advantage in not just stating the cost, but also influencing it to the extent possible pursuant to applicable laws and agreements. For example, there may be a lack of awareness that the holiday pay liability will increase overnight in connection with a salary review.
In some companies, it is almost a rule that a block of holiday is paid out at the start of the new holiday year without considering the true cost of doing so and which laws and rules are being broken in the process. By setting a monitoring strategy with regular strategically chosen reconciliation points, clear guidelines for the company’s managers and employees, and increased awareness around the impact of holiday liability on profits, unnecessary surprises can be avoided to a greater extent.
For some companies, the new holiday year has only just begun, while for others this will come at the end of March. Whenever this is, it’s a good idea to ensure you have a strategy going forwards for holiday planning and monitoring your company’s holiday liability.
If you want better insight into your holiday liability and its impact on profits, or if you want help gaining more control and establishing a plan for strategic monitoring, then please don’t hesitate to contact us at Azets!