Labor Law: An Employee’s Right to Monetary Compensation for Annual Leave

Distinct Purpose of Employee’s Right to Annual Leave and How to Use it

In the realm of labor law, the entitlement to annual leave stands as a fundamental right for employees, a privilege enshrined in the Labor Law (“Official Gazette of RS,” no. 24/2005, 61/2005, 54/2009, 32/2013, 75/2014, 13/2017 – CC decision, 113/2017, and 95/2018 – authentic interpretation – hereinafter referred to as “the Law”). Just as an employee cannot willingly forfeit this right, an employer is likewise prohibited from denying or compensating an employee in lieu of it. Nevertheless, there exists a singular exception, a scenario wherein a company must provide monetary compensation to an employee for unused vacation days.

Even when an employee expresses a desire to relinquish their right to annual leave in favor of monetary compensation, and even if a statement or agreement is signed with the employer, such an act lacks legal validity. This is primarily because the Law does not contemplate the substitution of annual leave with financial compensation, deeming it not to be in the best interest of the employee. The legislator’s aim is to deter any potential practices in certain companies that might involve substituting money for the provision of annual leave. According to the law, whether it pertains to a working day, a working week, or an annual vacation, each has a distinct purpose that cannot be supplanted by mere monetary compensation.

The conversion of annual leave into monetary compensation is only permissible under one circumstance: when the employment relationship comes to an end. In such instances, it is incumbent upon the employer to remunerate the employee for any untaken annual vacation days.

In accordance with the Law, the employer is obligated to compensate an employee who has not availed themselves of their annual leave with an equivalent sum in lieu of the unused leave days. This compensation is calculated based on the average salary of the employee over the previous 12 months, pro rata to the number of unused vacation days.

In practical terms, should an employee request the termination of their employment contract while adhering to the statutory notice period of 15 days, and if they still possess 20 working days of untaken vacation, the employer cannot provide the employee with the opportunity to utilize those vacation days.

Employees have the flexibility to take their annual vacations either in a single block or in multiple segments. If an employee chooses to take their vacation all at once, it must be used within the same year it was granted. However, if an employee opts for staggered leave, the first portion must encompass a minimum of two uninterrupted working weeks within the current calendar year, with the remainder to be consumed by June 30 of the following year.

Consequently, if an employee elects to consume their annual vacation in its entirety in the current year, they must be afforded this opportunity in 2023. Conversely, if leave is taken in portions, the initial segment for 2023, lasting at least two full working weeks, should be provided to the employee by no later than December 31, 2023, with the remaining leave to be taken by June 30, 2024.

There is one notable exception: in cases where an employee, due to maternity leave, child care leave, or special child care leave, fails to use even the first part of their annual leave within the calendar year. In such circumstances, the employee retains the right to avail themselves of that leave until June 30 of the subsequent year. Thus, under these specific conditions, it becomes possible to consume the entirety of the 2023 vacation during 2024, but not beyond June 30.

In the event that June 30, 2024, passes without the utilization of the 2023 annual leave due to maternity leave, the employer bears no obligation to provide it post-deadline. In such instances, the annual vacation for 2023 is deemed to have lapsed due to objective circumstances beyond the employer’s control, thereby absolving them of any wrongdoing and negating the requirement for compensation.

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