What Is the Dutch Holiday Allowance

In the Netherlands, employees receive a special financial bonus known as a holiday allowance or vakantiegeld. The benefit helps workers enjoy a well-deserved break during the summer months. The allowance is a mandatory payment that amounts to an additional 8% of an employee’s gross annual salary.

Although it is called a holiday allowance, employees are not required to spend the money on holiday arrangements; they can use it however they see fit.

Holiday Allowance Netherlands: The Origin Story

Holiday allowance in the Netherlands has its roots in the early 1900s. Initially, this benefit was reserved for white-collar workers, offering them paid time off to encourage vacations and improve their productivity upon returning to work. During this time, manual labourers and trade workers were denied such benefits, sparking efforts by worker unions to require similar rights for all employees.

By 1966, the Dutch government recognised the importance of vacation time for everyone who works in the Netherlands, passing the Holiday Act, which granted all workers over 18 vacation time and a holiday payment. Since then, the vacation money Netherlands provides has become a cornerstone of Dutch labour laws.

Framework Behind Holiday Allowance Law

The holiday allowance is governed by a legal framework that ensures Dutch employees receive a mandatory payment on top of their total gross salary. This system is further reinforced by Collective Labour Agreements (CAO), contracts negotiated between employers, Dutch trade unions, and employee representatives.

Role of the CAO for Holiday Allowance Vakantiegeld

A CAO is an industry- or company-specific agreement that can modify specific terms of employment. In regards to holiday pay, the collective labour agreement can:

• Enhance or limit the holiday pay if the employer provides a higher regular salary than the legal minimum. If employees are paid at least 108% of the minimum wage, the CAO may state they are not legally entitled to pocket money.
• Specify the payment time for the Dutch holiday allowance. While the standard is a Dutch annual leave payment, the CAO may allow monthly payments or alternative payout schedules.
• Dictate any additional benefits related to paid vacation time, like extending the minimum number of vacation days beyond the statutory minimum of 20 working days.

How To Calculate Holiday Allowance in the Netherlands

The holiday leave is 8% of an employee’s gross annual salary, a significant part of employee compensation. The calculation is based on the gross income earned in the previous year, excluding bonuses, expenses, or profit-sharing.

Also, when is the holiday allowance paid in the Netherlands? Most employees’ vacation allowance is accumulated throughout the year and paid in a lump sum, usually in May or June.

Annual Holiday Pay Netherlands Calculation

If an employee earns €45,000 gross per year, the holiday allowance would be calculated as follows:

• €45,000 x 0.08 = €3600 of so-called pocket money per year before taxes.

Monthly Salary Holiday Allowance Netherlands Calculator

In some cases, employees and employers may agree to spread out the paid holidays on a monthly basis. In this case, the employee’s monthly salary would increase by 8%. For example:

• Gross monthly salary: €3,750
• Monthly holiday allowance: €3,750 x 0.08 = €300
• Total monthly pay: €3,750 + €300 = €4,050

Payment Upon Employment Termination

When an employment contract ends before the typical payout period, the unpaid accumulated vacation allowance is added to the employee’s last salary payment. So, even if employees leave the company mid-year, they still receive the Dutch vacation pay they have earned.

Public Holidays and Their Role in Paid Leave Calculation

Dutch law does not automatically include public holidays in the statutory paid leave entitlements. However, they can impact the paid leave calculation. The Netherlands recognises several national holidays:

1. New Year’s Day
2. Easter Monday
3. King’s Day
4. Liberation Day (every five years)
5. Ascension Day
6. Whit Monday
7. Christmas Day and Boxing Day

Employers are not required to give employees time off on these holidays. Whether or not they are considered paid leave depends on the employee’s contract or the Collective Labour Agreement (CAO) applicable to the sector.

In many companies, the national holidays are considered paid days off. If a public holiday falls on a weekday, employees receive a paid day off without affecting their 20 statutory vacation days.

If a public holiday falls during an employee’s vacation period, it does not count toward their statutory vacation days.

CAOs may offer additional stipulations regarding public holidays. In some sectors, workers may be granted extra public holidays or receive additional compensation if required to work on these days.

Part-time employees’ public holidays are calculated proportionally based on their working hours. If a public holiday falls on a day they are not scheduled to work, it does not entitle them to a paid day off.

Who Is Entitled To Receive Holiday Leave Pay?

In the Netherlands, most employees automatically qualify for paid holidays, including full-time, part-time, and temporary workers. Regardless of their work hours or contract type, employees accumulate holiday allowance as long as they are employed.

Exceptions

While paid time off is a right for most workers, there are a few exceptions:

1. Freelancers (ZZP’ers) and self-employed individuals do not receive a mandatory holiday allowance, as their gross salary, employment period, and vacation days are managed independently.
2. Interns are generally not entitled to paid holidays, though some companies may voluntarily provide compensation.
3. Workers with a higher monthly salary, particularly those earning more than three times the legal minimum wage, may have different statutory obligations regarding paid leave. These employees in the Netherlands may receive reduced holiday allowance amounts or none at all, depending on their employment contract.

Dutch Holiday Allowance Taxation

Is holiday allowance taxable in the Netherlands? The vacation days in the Netherlands are subject to taxation just like any other form of income. However, because it is classified similarly to bonuses, it is taxed at a higher rate than regular gross salary, depending on the employee’s total annual gross salary.

How Much Is Holiday Allowance Taxed in the Netherlands?

The exact tax percentage depends on the employee’s salary:

• For gross earnings up to €73,031, the tax rate on holiday allowance is 36.93%.
• For an employee’s gross wage above €73,031, the tax increases to 49.50%.

Example of Tax on Holiday Allowance Netherlands

An employee with a gross holiday allowance of €3,750 falls into the first tax bracket. The tax deduction will be determined as follows: 

• At 36.93%, the employee pays €1,384.87 in tax.
• The net holiday entitlement after tax would be €2,365.13.

Reconciliation Percentage

In addition to the standard tax rates, a reconciliation percentage may apply to ensure accurate tax withholding. This percentage adjusts for potential discrepancies in income tax credits. For employees earning between €22,660 and €73,032, an additional 6.1% applies, increasing the overall tax on their holiday allowance.

Why Is the Holiday Allowance Taxed Differently?

Since holiday allowance is paid once a year, the higher tax rate ensures that the employee’s total annual tax liability is accurately calculated. Any overpayments or underpayments are usually adjusted during the annual income tax return, where the employee may either receive a refund or pay additional tax based on their total income for the year.

Understanding what is holiday allowance in the Netherlands and holiday allowance regulations is essential for employees, as the net amount they receive in holiday allowance will likely be lower than expected due to the special taxation applied.

Final Thoughts on the Importance of Holiday Allowance in the Netherlands

The additional 8% of an employee’s gross salary is a valuable benefit designed to support work-life balance, giving employees in the Netherlands the financial means to enjoy their time off, especially during the summer holiday. It rewards hard work and encourages employees to rest and recharge, which can lead to increased productivity and job satisfaction.

As a foreigner working in the Netherlands, you must know how much you are entitled to, how the allowance is taxed, and how it impacts your overall income. If you’re still considering your move to the Netherlands, we invite you to explore open job opportunities in the Netherlands and enjoy the holiday allowance and many other benefits that the Dutch work culture fosters!