How does holiday pay work, and how much are you entitled to each year?. Did you know that the concept of holiday pay is mainly familiar to the Netherlands and Belgium? Good for us, but it’s handy to know how this special form of salary works.
What is holiday pay?
Holiday pay, also known as vacation allowance or holiday bonus, is an allowance paid by employers to employees, usually towards the end of May (depending on the company you work for). The idea is that employees can cover the extra costs of a vacation.
As an employee, you generally have the right to 8% of your gross salary. The total amount is usually accumulated from June 1 to May 31, so ultimately, you receive 8% of your gross annual salary as holiday pay. If your employment is terminated before this is paid, you will receive the amount accrued so far from your employer upon departure. It may also be that you don’t receive holiday pay, or at least not a lump sum at the end of May. In that case, your holiday pay is usually part of your monthly salary, resulting in a higher monthly income.
How Much Tax Do You Pay?
You also pay tax on your holiday pay. Similar to income tax, the tax system uses tax brackets. However, there is one significant difference: holiday pay is considered ‘additional income’ compared to normal wages (known as ‘special income’). This means that it falls under the ‘special rate’ when calculating your tax. As a result, you will generally end up in a higher bracket and, unfortunately, pay a higher percentage of tax than you are used to paying on your regular income.