Can holiday pay be included in salary?
Contrary to holiday pay for blue-collar workers, for white-collar workers it is paid by the employer himself. The gross amount of holiday pay corresponds to the salary that the employee would normally earn during his statutory holidays if he were to just continue working as normal (single holiday pay), plus a supplement for each month, equal to one-twelfth of 92% of the gross pay in the month in which the holiday starts (double holiday pay).
For white-collar employees who are entirely or partly paid on a variable salary basis, the employer also has to pay holiday pay on the variable portion of the salary (commissions, bonuses and other extra payments).
In practice, we notice that (often foreign) employers grant their (expatriated) employees a gross annual salary, stating expressly that this salary is deemed to include all benefits to which the employer is entitled under his employment contract (including holiday pay). The employees then receive 1/12 of this annual salary every month. The question arises whether such an arrangement is legal.
Invalid provision during performance of the employment contract
The Court of Cassation has already on several occasions ruled that the parties cannot validly provide that holiday pay is deemed to be included in variable pay, for the very reason that it is calculated on the basis of that pay (Court of Cassation, 1 April 1987, J.T.T. 1987, 313, note by C. WANTIEZ; Court of Cassation, 15 January 1990, R.W. 1990, 359; Court of Cassation, 25 October 1999, J.T.T. 2000, 229). The same principles would also appear to apply to the inclusion of holiday pay in the fixed monthly salary.
Making provision in the employment contract for the payment of a gross annual salary with a clause that holiday pay is already included in the salary is therefore not legally valid. The employer thereby risks having to pay holiday pay on top of the agreed annual salary.
Invalid provision after termination of the employment contract
The question also arises to what extent employees that have agreed such an (invalid) provision in their employment contracts can validly renounce their claim to holiday pay following termination of the employment contract.
The case law and the legal authors are not all of one mind on this issue.
In general, it is taken that, after the termination of their employment, employees can renounce mandatory rights but not rights that are matters of public policy.
In a recent decision from 31 March 2009 (Brussels Labour Court, 31 March 2009, case no. AR14.270/07), the Brussels Labour Court held that provisions concerning the annual holidays legislation are matters of public policy. This thus means that employees may not renounce application of the annual holidays legislation after the end of their employment.
The employee can lay claim to unpaid holiday pay and, in principle, can go back 5 years in time.
Such problems are best avoided by clearly defining the gross annual salary in the employment contract. Thus, it can be provided that the salary will be paid out in, say, 12.92 instalments (single and double holiday pay) or 13.92 (single and double holiday pay and end-of-year bonus) or 14.92 (single and double holiday pay and double end-of-year bonus), or such like.
In this way, the employer can provide for an annual salary without the risk of being liable for arrears of holiday pay.
For employers that do not wish to pay holiday pay on the employee’s variable pay, there is yet another solution, which is provided for in section 39, fifth paragraph, of the Holidays Decree of 30 March 1967. Section 39 states that, for white-collar employees that receive both fixed and variable salary, a collective bargaining agreement can be signed at company level in which the rules for calculating holiday pay are deviated from.
A collective bargaining agreement at company level in which it is agreed that holiday pay is deemed included in the variable pay is therefore legally valid.
Holiday pay on holiday pay?
Employees thus also have to pay holiday pay on variable salary – unless this is ruled out in a collective bargaining agreement at company level. The gross amount of the holiday pay on the variable salary is calculated on the average pay over the twelve months preceding the month in which the holiday is taken:
- the single holiday pay is equal to the daily average over those twelve months; and
-the double holiday pay is equal to 92% of the average monthly pay over the same period.
Since recently, there has been controversy amongst the legal writers and in the courts on the question of whether the single holiday pay on the variable salary that was paid to a white-collar worker in the twelve months prior to the holiday month (year X) has to be included in the basis for calculating the holiday pay for the subsequent year (year X + 1).
The Court of Cassation gave a conclusive ruling on this for the first time in a decision of 15 January 1996. The Court held that the single holiday pay that white-collar workers with variable salary earn in year X is taken into consideration to calculate the holiday pay in year X + 1 because social security contributions are due on it.
The Court of Cassation took as the basis for this reasoning section 42 of the Holidays Decree of 30 March 1967 and interpreted it as meaning that the days of work interruption (i.e. holiday) had to be considered as actually worked days for the purposes of calculating holiday pay whenever the employer is obliged to report them for the purpose of calculating social security contributions.
The Court’s reasoning was not always followed by lower courts because it found no support in the provisions of the legislation. Indeed, section 42 states that only the days set forth in section 41 of the Holidays Decree can be regarded as actually worked days. Since section 41 makes no reference to (days’) holiday, according to this reasoning, single holiday pay cannot qualify for calculating holiday pay.
Oddly enough, in a recent decision of 29 June 2009, the Court once again confirmed its stance and ordered that single holiday pay has to be included in calculating the holiday pay for the subsequent year. This therefore means that holiday pay does indeed have to be paid on holiday pay.
Shifting holidays in cases of illness
Two judgments from the Court of Justice (the Schultz-Hoff case from 20 January 2009 (C-350/06 and C-520/06) and the Pereda case from 10 September 2009 (C-277/08)) have caused European holidays legislation to falter, including in Belgium.
In both cases, the Court held that a national law or rule (e.g. a collective bargaining agreement) that provides that an employee who is ill during the holiday period cannot after his recovery take his annual holiday at some other time is contrary to Directive 2003/88 of 4 November 2003 concerning certain aspects of the organisation of working time. This therefore means that the right to annual holiday may not lapse at the end of the period laid down by national law, even if the employee has been on sick leave and has not been able to take up his right to annual holiday.
The right to holiday, according to the Court of Justice, is one of the most-important principles of Community law, and may not be deviated from.
The Belgian holidays legislation is contrary to Directive 2003/88, since it accords no right to shift days’ holiday to the next holiday year. That means that employees who are ill and are therefore unable to exercise their right to holiday in principle forfeit their holiday rights.
In principle, there should be national rules providing that holidays can be shifted to the next holiday year if the employee finds himself unable to take up his holidays. Certainly for long-time ill employees, this might lead to a serious cost for the employer.
There is no immediate danger for employers from the private sector as yet since workers cannot invoke the Directive directly against their employers. We thus await an initiative from Belgium’s lawmakers, who will have to amend the holidays legislation in order to avoid a condemnation from Europe.