What happens to untaken holidays when you lose your job in Germany?

Losing your job comes as a surprise – at least for most employees. And almost no one has ever taken exactly the remaining annual leave, when a job is lost. The obvious question, in this case, is: What happens to holiday pay on termination of employment – does it expire, can you still use your holiday, carry it over to your new employer, or have it paid out? What happens if a “leave of absence” is offered or agreed upon in a termination agreement? Although the rules for untaken holidays on termination in Germany are similar to other European countries, there are some technical differences. This blog article will outline the most important ones.

Do you also lose your holiday entitlement when you lose your job?

Do you still get a holiday (pay) when you lose your job in Germany? If an employer issues an ordinary termination, the employment relationship ends after the notice period has expired. Sometimes, there are regulations on holiday entitlements in a severance agreement (termination agreement). In other cases, employers refuse to grant vacation leave in the event of a dismissal. But that’s not entirely legal. Because in general, neither a regular termination nor a termination “without notice” invalidates your holiday entitlement. In principle, the employer must allow the departing employee to take the remaining vacation time or compensate him/her – in addition to your severance payment.

How do you calculate your remaining holiday pay on termination of contract?

This depends primarily on your contract. The statutory holiday entitlement contains just a lower threshold , which most contracts exceeed. The minimum holiday entitlement in Germany is regulated in the German Holidays Act. For employees with a five-day week, there must be at least 20 working days of vacation (less if you only work part-time). But that is the absolute minimum. In most employment contracts (or collective bargaining agreements), employers grant significantly more (e.g. 30 days) vacation.

There is one small caveat for very “fresh” employment. According to the law, the holiday right of new employees requires 6 months into employment. If there are disputes between employer and employee during the first 6 months (often labeled “trial period”) and a notice of termination is given in this time, this exemption is rather important.

What happens to untaken vacation time?

In Germany, like in many other countries, employees have a legal right to compensation for untaken holidays on termination. Employees who have taken a smaller pro rata portion of their holiday entitlement can choose:

• Carrying their remaining holiday entitlement over to the next employer or
• Receiving compensation for the untaken holiday.

Most employees choose the latter. In this case, the payment in lieu of unused leave on termination of employment is determined on the basis of the “normal” remuneration. This general rule applies in Germany just like in many other countries – and only the technicalities differ. Under German law, the calculation of holiday pay follows the German Federal Holiday Act (BUrlG). Sec. 11 determines that holiday pay is based of the compensation payable to a worker prior to his annual leave.

Therefore, one must divide the employee’s monthly pay into a daily or hourly rate, depending on whether the worker’s daily working time is fixed or variable. Then you multiply this rate by the number of days or hours of work that the employee would have actually worked. However, employer and employee will agree on modifications to these rules may – same is true for collective bargaining agreements and other collective or individual contracts.

If, on the other hand, an employee has taken more than their pro-rata entitlement on termination, in Germany the employee sowa nor have to make a payment to the former employer for “excess holiday”. In theory, your entitlement to holiday with your new employer could be lower, due to the fact that the employee has already used these days. That does not happen a lot, though.

What happens to vacation time when “released from duty”?

If an employment relationship ends, the employer often tries to “release” the employee “from duty”. This means that the employee no longer has to show up for work and still receives his/her salary until the last day of the employment relationship. Employers and employees often both have an interest in such a “leave of absence”.

However, an employee is often released on less-than-clear agreements. For example, employers often do not make it clear enough in cases where they intend to compensate with the release time for remaining holiday entitlement. In this case, the employee can, in principle, request payment of the unused leave in money in addition to the severance pay upon termination of the employment relationship. There are many loopholes in this area, so we recommend getting in touch with a labor law expert.

Avoid these mistakes at all cost

In the event of termination, you should always agree on clear terms. If the employer only declares that he is releasing the employee, giving him or her a leave of absence, or suspending him or her until the end of the notice period, this means a revocable release. Holiday entitlement exists unless this is expressly “irrevocable” in an agreement. In the case of a revocable release, the employer could ask the employee to return to work. And he would then have to return to his job, so he does not have sufficient security that he/she can for example go on vacation. Only if the employer expressly and irrevocably releases the employee (taking into account outstanding holiday entitlements) does the employer waive his right to continue employing the employee. And then the remaining vacation days are offset and cannot be compensated.

In general: Can you simply choose money instead of holidays?

There is no general holiday “payout right” for your vacation time. Only if is simply not possible to grant the remaining vacation (in full or partially), there is the option for holiday pay on termination of employment. Section 7 of the Federal Holidays Act entitles employees in these cases to a payout. Prerequisite is that when the employment relationship ends, there is still vacation time which is not usable any more. This is the case, for example, if the employee and employer conclude a termination agreement with immediate effect and vacation is no longer possible.

The law defines the exact amount,  based on the average earnings of the last 13 weeks before the start of the holiday. Overtime payments, for example, do not count in this calculation; other variable compensation elements do. We recommend to do the exact calculation in cooperation with an expert on German labor law.