It’s the Most Wonderful Time of the Year

With ‘The Most Wonderful Time’, I am talking about the period in May and June when most employees receive their holiday allowance.

The holiday allowance is usually 8 percent of the gross salary and is often paid out at the end of May or June and calculated on the salary of the past year.

Holiday allowance or holiday bonus is the amount that the employer has to pay to his employee on top of the agreed wage by virtue of the Minimum Wage and Minimum Holiday Allowance Act. Deviation from this is only possible by collective agreement under certain conditions.

Holiday allowance is the regular salary an employee receives during his/her leave. This term is often confused with holiday allowance or holiday bonus.

As an employee, you are entitled to at least 8 percent holiday allowance on the gross annual salary. This includes overtime, performance bonuses, commissions, irregularity bonuses and paid holidays. Expense allowances, profit allowances and year-end bonuses do not count.

Studies show that employees do not necessarily spend their holiday allowance on a holiday. There are various ways of spending this extra money wisely.

1. Are you not going on holiday, or only later? Then put your holiday money aside. For example, in a savings account. This makes it more difficult to spend it on other things.  

2. Check whether you have a sufficient financial buffer to pay for necessary, unexpected costs. If not, you can use the holiday pay to supplement the buffer.
3. Are you expecting larger expenses, such as car or home maintenance? Then it may be smart to put the holiday money aside for this.
4. Or invest it in the energy efficiency of your home. Like insulation or solar panels. In the long run, this can lead to savings on energy costs.
5. Do you have debts or arrears? Then you can use (part of) the money to clear this.
6. Do you have changing incomes? Then it might be wise to put aside the holiday money for months with less income.

I started my story saying that most employees will receive holiday allowance, while this is a legal right for all employees, so what is the difference? That is very simple, there are employers and employees who have agreed in writing that the holiday allowance will be paid monthly. If you receive your holiday allowance monthly, it becomes ‘normal’ rather than an extra once a year.
From a tax point of view, this does not matter. You will receive the same amount in total, whether you choose to receive it monthly or annually.

So, now that we know what’s going on, we can get on with enjoying that extra bit of sunshine! And if you use your holiday money for a holiday, then I wish you lots of fun!