As an employer, it is important that you know the legislation for both calculation and payment of holiday pay in Norway. Mistakes may have financial consequences and could also lead to reputation loss for your company.
The Holiday Act (ferieloven), supplemented by the collective agreements, provide the general framework for annual holidays and holiday allowance in Norway.
The Holiday Act is ineluctable. This means that the employee cannot be subject to inferior rights than provided by the law.
Who are entitled to holiday pay?
To be entitled to holiday pay the concerned person must be evaluated as “an employee”.
This means that self-employed contractors and freelancers are normally not entitled to receive holiday pay.
Holiday pay settlement
In Norway, vacations are generally unpaid. The employees are not entitled to ordinary salary during holiday absence. Holiday allowance is paid instead of regular salary during the holiday absence.
The holiday pay is earned the year prior to the year the holidays are taken. The payment is calculated based on the employee's salary during the year of accrual.
Employees who did not work the previous year are entitled to holidays, but not to holiday allowance.
Also read: Annual wage report in Norway
Holiday pay calculation
- Remuneration for work should be included in the holiday pay calculation.
- Bonuses and commission-based salary which depend on a personal work contribution must be included in the basis for calculating holiday pay.
- Remunerations like travel expenses, subsistence, lodging and holiday allowance paid during the year of accrual, should not be included in the basis for the calculation.
The basis for holiday pay should be stated on the employee’s pay slip every month. Further it must be shown as a liability in the employer’s accounts, but it does not need to be set aside in a separate bank account (like tax deducted).
Normally the employer cannot include holiday pay as a part of the ordinary salary. Holiday allowance should as a general rule be calculated in addition to the ordinary salary. Please note that collective agreements, in particular offshore, have special regulations both with regard to holiday pay and holiday periods. As an employer you should pay careful attention to the regulations applicable for your staff.
How much holiday pay is the employee entitled to?
Minimum holiday pay in Norway is 10,2 percent of the salary paid during one calendar year (4 weeks + 1 day vacation). For employees over the age of 60, the rate is 12,5 percentage.
Many employees have an agreement with their employer or is a part of a collective agreement that allows holiday pay at a rate of 12 percent of the salary paid during one calendar year (5 weeks’ vacation). For employees over the age of 60, the according rate is 14,3 percentage.
When should payment of holiday pay be made?
Holiday pay should be disbursed the last ordinary pay day before the holiday, and no later than one week prior to the employee’s vacation.
Note that employers can pay holiday allowance a specific month (e.g. June). In these cases, the employer must pay ordinary salary when the employee takes his or her vacation if they take holiday at any other time.
Employees on sick leave cannot demand their holiday pay to be disbursed until they either take their holiday or terminate the employment relationship. If the employee on sick leave takes vacation, he or she must submit a notification to the Norwegian Labour and Welfare Administration (NAV) in order for sickness benefit payments to be temporarily suspended during the period when holiday pay is received.
Termination of employment
When an employee leaves the company, the holiday pay he or she has earned until the date they leave should be disbursed on the last day before the employee leaves.
More information: Do the right things when doing business in Norway
Do you need to deduct tax on holiday pay?
Holiday pay is considered taxable income and is included in the basis for tax calculation the year it is disbursed.
The employee’s tax card determines whether or not withholding tax should be deducted from the holiday pay when disbursed to the employee.
Holiday pay is generally exempted from payroll withholding tax, as the “normal” tax card is based on deduction for 10,5 months. This means that the employer should not deduct tax from holiday pay when it is paid as the tax is deducted from the employee's ordinary salary during the rest of the year.
For employees with tax card that states deduction of 12 months, withholding tax must be deducted also on holiday pay (e.g. Tax card 7150/7160).
What will happen if you do not pay holiday allowance in accordance with the law?
If holiday pay is not calculated and paid in accordance with the Holiday Act or applicable collective agreements, the ultimate consequence for your business may be that you will have to reimburse holiday pay to all employees affected by the error.
In a judgment of the Court of Appeal of December 2015, an employee had received holiday pay as part of his monthly salary throughout his employment. After the employment relationship had come to an end, the employee submitted a claim for payment of holiday pay for the past three years.
The employer was convicted to pay the holiday allowance to the employee, in addition to the amounts that had already been paid, since payment had not been done in accordance with the law. The employer also had to cover the employee's legal costs.
Help with holiday pay
If you would like assistance in connection with the disbursement of holiday pay to your employees, you could contact one of our experts or find out more about our labour law services on the Magnus Legal website.
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