Annual leave is defined as a worker’s right and an employer’s obligation, the purpose of which is to restore the worker’s abilities necessary for safe and successful further work. His right is defined by the Labour Law, regardless of whether the worker has a fixed-term or indefinite employment contract. Following, we present a brief overview of benefits that can be obtained during the use of annual leave.
Holiday allowance as a special reward
Due to the increased costs that are expected during the use of annual leave, employers can, according to the tax regulations, pay out a non-taxable compensation, the so-called holiday allowance. Holiday allowance is a worker’s material right that can be realized based on acts such as an employment contract, work regulations, or a collective agreement. It is important to note that if the right to payment of the holiday allowance is not defined in the above-mentioned acts, the worker can realize his right to the holiday allowance based on the goodwill of his employer only.
Payment of non-taxable and taxable holiday allowance
Based on Article 7, paragraph 2 of the Personal Income Tax Ordinance, it is prescribed that the holiday allowance, as a special reward, can be paid both taxable and non-taxable. Given that the Personal Income Tax Ordinance does not specify precisely, an occasion for a non-taxable payment can be any occasion that according to the source of law belongs to the worker (use of annual leave, Christmas, or Easter holidays, etc.)
Non-taxable payment of holiday allowance is possible if two conditions are cumulatively met:
- a holiday allowance must be paid to a natural person, that is, to an employee with whom the employer has an established employment relationship based on the employment contract; and
- the amount paid out should not exceed HRK 3,000.00 per year (unless the worker did not receive another special award during a stated period that would exceed the amount of HRK 3,000.00). The employee must give a written statement to the employer about possible other payments from the other payers.
If the employer pays the employee a holiday allowance in the amount above the prescribed non-taxable amount, the difference between the prescribed amount and the paid-out amount will be considered employment income.
There are several ways to pay out the taxable amount of holiday allowance:
- the taxable amount is paid before the salary,
- the salary and the taxable part of the holiday allowance are paid at the same time,
- the salary is paid first, and then the holiday allowance.
In both cases, while paying the holiday allowance, the employer must submit a report on receipts of income tax and surtax and contributions for mandatory insurance in the form of a JOPPD form no later than the 15th of the month for payments made in the previous month. How the data in the form will be displayed depends on the calculation itself.
Who can receive a holiday allowance?
A tax-free holiday allowance can be granted to an employee regardless of how long he has been employed by the employer, or even to an employee who does not work for the entire year, provided he has exercised his right to use annual leave.
Please note that occasional holiday allowances cannot be paid to workers on sick leave, maternity, or parental leave, because these workers then use their rights from the mandatory health insurance and do not use their annual leaves.
In practice, the question is often raised whether workers who the employer has not employed for the whole year can also utilize the right to a holiday allowance. Given that tax regulations do not limit the payment of holiday allowance, it can be granted tax-free to an employee, regardless of the part of the year in which he started his employment relationship with the employer.
The difference between salary compensation during annual leave and holiday allowance
The main difference between salary compensation during annual leave and holiday allowance is that salary compensation is regulated by the Labour Law, while holiday allowance is not. As already mentioned, the payment of holiday allowance depends on the will of the employer, and it can be defined by one of the acts such as the collective agreement, the work regulations, or the employment contract.
Croatian tourist card – tax-free receipt
The Personal Income Tax Ordinance also provides the possibility of paying HRK 2,500.00 tax-free per year as a fee to cover the costs of hospitality, tourism, and other services intended for workers’ vacation. Employers can pay compensation for the expenses intended for workers’ vacation to employees, regardless of whether they are employed for a fixed or indefinite period. The payment of this fee is made through the so-called “Croatian tourist card” granted in the name of the employee to whom this tax-free receipt is paid.
