Explained: Dutch Holiday Allowance

It’s that special time of year again! It’s the time of year when most working people in the Netherlands receive nearly double their monthly salary all at once. That’s right: the Dutch Holiday allowance (vakantiegeld, in Dutch) is worth 8% of your gross annual salary and is normally paid out every May or June – just in time to finance your Summer vacation.

But what exactly is the Dutch holiday allowance, and what does your HR team need to know about it?
If you’re unfamiliar with the concept, this blog will explain everything you need to know about the Dutch holiday allowance.

• What is the holiday allowance?
• The history of holiday allowance
• How to calculate holiday allowance
• How holiday allowance is paid
• Who is entitled to receive the holiday allowance?

what is the ‘holiday allowance’ (vakantiegeld)?

Think of the holiday allowance as the Dutch answer to “pocket money” for adults. Remember how, as a child, your parents would pay you an allowance for doing chores and keeping up with your schoolwork? Back then, you did not need a salary to meet your basic needs, so you would count on this allowance to be able to do fun things you would not otherwise be able to afford.

In the Netherlands, the government asks employers to continue paying that “pocket money” into adulthood via the Dutch holiday allowance so we can enjoy a summer holiday. The holiday allowance is an additional sum paid on top of your gross salary. The allowance is worth 8% of an employee’s gross wage from the previous year.

the history of holiday allowance

In the Netherlands, we work to live instead of living to work. Nothing exemplifies this better than the existence of “vakantiegeld.” The idea for this incentive to be paid in May is to encourage employees to plan a trip during the summer – therefore supporting their employees’ work/life balance. The idea is that employees who maintain a healthy work/life balance are happier, healthier, and less likely to miss work.

Before 1910, any time you would take off work to go on holidays would be unpaid time off. Therefore, for most workers, it was difficult to get approval to take vacations (even unpaid) without losing their jobs.
In the 1920s, most white-collar workers in the Netherlands were entitled to take paid time off for a vacation. When workers were incentivized to take time off work, employers realized that their workers would return to work more productive and refreshed.

It was during this decade that employers had the idea of the “holiday allowance” as we know it today. Employers of white-collar workers would offer this benefit in order to attract and retain people in their workforce. However, employers of trade workers did not offer similar benefits and for the next few decades, there would be a fight between worker unions and employers for paid time off work.

In 1966, the Holiday Act was introduced, giving all workers over 18 in the Netherlands the right to paid time off for vacations.

How to calculate holiday allowance for an employee

As a rule of thumb, the holiday allowance amounts to 8% of an employees’ yearly gross salary. So if an employee earns around €50.000, – euro’s gross per year, you can expect to receive an estimation of €4000, – euro’s gross (before taxes) per full year worked. The calculation is as follows:

(50.000 x 0.08) = 4000 per year

It is also possible to request that the holiday allowance is partially paid out each month, instead of the whole amount once per year. This would mean receiving a higher monthly salary for the employee. In this case, we can calculate the amount of holiday allowance per month by using their monthly rate. The calculation is as follows:

(4167 x 0.08) = ~333 euros per month

Update: As of January 2020, employers will be required to pay a slightly higher holiday allowance (8.33%) for workers employed on a temporary basis. Read more about the updates here.

when is the holiday allowance paid?

Typically, holiday allowance is paid out once per year as a lump sum during the month of May. Because the idea behind the allowance was to provide employees with funds to finance their vacation, the tradition of paying holiday allowance began in May. Nowadays, employees and employers can also agree to pay out holiday allowances every month instead – resulting in a higher net salary per month. As an employer or HR, you need written consent for your employee to set this up.

If the employment contract ends before May, the accumulated vacation allowance is still included in the last salary payment.

is everyone entitled to the holiday allowance?

Most employees in the Netherlands will automatically receive the holiday allowance when they start their employment with a company – if they are at least 18 years old. The holiday allowance is also accumulated based on the amount of time worked. In other words, if a full-time employee starts in January, then the amount of holiday allowance they will earn is worth 8% of their gross salary after 5 months.

There are also extraordinary situations where an employee may not be entitled to this allowance. Few examples:

• Freelancer ZZP’ers (zelfstandige zonder personnel) are self-employed individuals or entrepreneurs who are not committed to long-term employers. Therefore, their work and holiday arrangements are set on their own terms.
• You work in a sector whose collective labour agreement states that employees have no right to the holiday allowance.
• There is no obligation for companies to pay the holiday allowance for internships. While it is common for Dutch employers to offer some amount for the holiday allowance to interns, it is also not expected.
• If the employee’s earnings are triple the Dutch minimum wage, the vacation pay may be reduced or eliminated. It very much depends on the agreement between the employee and the employer.

hr and payroll services for foreign businesses

Expanding to any new market has its challenges – the Netherlands is no different. The Netherlands is full of opportunities for foreign businesses, but local knowledge is essential to grow without risk.

To learn more about how Octagon Professionals can help you expand your business in the Netherlands, improve your current HR or payroll processes, schedule a consultation with one of our experts.