Payment of Holiday Allowance in 2023

As we enter the summer vacation period, workers and employers ask the same question year after year: is the payment of holiday allowance mandatory by the employer?

Definition of Holiday Allowance 

Holiday allowance is a material right of the worker, which can be determined based on acts such as the employment contract, work regulations, and collective agreements governing workers’ rights. The purpose of the holiday allowance is to assist in covering the increased expenses of employees during annual leave.

Is there a legal obligation to pay holiday allowance? 

The employer has no legal obligation to pay employee holiday allowance unless the employer has committed to it based on the source of labour law. In that case, the payment of holiday allowance becomes their obligation. If the payment of holiday allowance is not prescribed based on the acts, the employer is not obligated to pay it, and employees can only claim this right based on the employer’s willingness. The employer can make the payment of holiday allowance exempt or taxable according to the Ordinance on Personal Income Tax (NN 10/17, 128/17, 106/18, 1/19, 80/19, 1/20, 74/20, 138/20, 1/21, 102/22, 112/22, 156/22, 1/23, 3/23).

Non-taxable Payment

Tax regulations determine the maximum amount of annual leave allowance without taxation. An employee can receive up to 663.62 euros per year exempt from taxation for occasional awards, including holiday allowance, Christmas bonuses, Easter bonuses, and other amounts for the current period. Based on the above, the holiday allowance can be paid exempt from taxation:

  • If the employer pays the allowance to a natural person – an employee with an employment relationship based on an employment contract
  • If the amount is at most 663.62 euros per year.

For the exempt payment, the employer must submit an income tax and surtax report and contributions for compulsory insurance through the JOPPD form. This must be done by the 15th of the month for payments made in the previous month.

Taxable Payment 

If the receipts from occasional prizes exceed the mentioned non-taxable amount, then they are considered income from independent work, i.e. salary, and are taxed. Payment of the taxable amount employer can do in several ways:

  • it is paid out before the salary
  • the salary and the taxable portion of the holiday allowance are paid simultaneously
  • first, the salary is paid, then the holiday pay.

The employer submits the JOPPD form to the Tax Administration for taxable payments. The information on the JOPPD form depends on the payment method of the taxable allowance.

Check Exempt Payments 

CONFIDA Croatia’s tax experts advise employers to check during the tax period up to which amount they have paid occasional awards. This way, they can determine if there is room for additional exempt payments to their employees.

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