Holiday payout - Allowed or not?

According to Art. 329a of the Swiss Code of Obligations (CO), employees are entitled to at least four weeks' holiday per year of service, and employees up to the age of 20 are entitled to at least five weeks' holiday. During the term of the employment relationship, holidays may not be compensated by cash benefits or other benefits. It should be noted that this provision is absolutely mandatory. This means that, in principle, no deviation from this principle is permitted. Practice allows for certain exceptions, which are discussed below. In practice, it is often the case that employers pay out holidays even though this is not legal. This article outlines the key legal principles and refers to a new Federal Supreme Court ruling that confirms the case law.

Holiday payout for short work assignments or very irregular part-time work

In exceptional cases, case law permits the payment of holidays, namely when the granting of holidays makes no sense. If an employee is only scheduled for a short assignment, e.g. to cope with peaks, or works part-time on a very irregular basis with highly fluctuating working hours, holidays can be included in the (hourly) pay. Please note: In the case of regular part-time work, it is not permitted to compensate holidays with the salary.

If, in exceptional cases, payment of holiday pay is permitted, the entitlement must be stated in the contract and must be shown separately in each payslip as a percentage and in Swiss francs. A simple statement such as "holiday allowance included in salary" is not sufficient according to supreme court rulings. If holidays are paid out, it must be ensured that these requirements are met, otherwise there is a risk that the holiday entitlement will be claimed again from the employee (so-called "double payment of holidays").

Calculation of holiday pay

The percentage of holiday pay to be shown varies depending on the number of weeks of holiday to which the employee is entitled in the employment relationship.

4 weeks holiday per year = 8.33% of the hourly wage

5 weeks holiday per year = 10.64% of the hourly wage

6 weeks holiday per year = 13.04% of the hourly wage

If there is a different holiday entitlement, e.g. 22 holiday days per year, the percentage is calculated as follows:
Holiday entitlement / (260 working days - holiday entitlement) --> 22/238 = 9.24%.

What is irregular work?

This question is not clearly answered by the courts. Accordingly, no general answer can be given here and a sense of proportion is required. If an accountant works 15 hours a week, this is part-time, but not irregular. Therefore, in theory and based on current case law, it would not be permitted to pay out holiday pay. In practice, this happens frequently, but is not unproblematic.

The problem could be solved as follows: The holiday allowance is calculated and recognised, but not paid out. Instead, the holiday entitlement is paid out when the employee actually takes holiday. Employers often argue that this is impractical and time-consuming. This may be true, but it does harbour a certain risk that you need to be aware of.

Holiday payout on termination of the employment relationship

If there are still holiday days available when the employee leaves the company that can no longer be taken, it is legally permissible to pay them out. However, if an employee wishes to take the remaining holidays in kind, this can only be refused for good cause. This may be the case, for example, if the employer does not yet have a replacement for the departing employee and is dependent on their work.

Federal Supreme Court decision 4A_357/2022 of 30 January 2023

In this case, the Federal Supreme Court had to decide whether holiday pay may be paid out with the current salary even in the case of full-time employment.

In the specific case, an employee had a full-time job. The employment contract stipulated working hours of 45 hours and an hourly wage of CHF 18.00, plus a percentage of holiday pay. After being dismissed by the employer, the employee sued for, among other things, the gross holiday pay of CHF 17,340.70 plus interest. The Basel-Landschaft West Civil District Court ordered the employer to pay, among other things, CHF 17,340 in holiday pay, which was confirmed by the Basel-Landschaft Cantonal Court. The employer took the case to the Federal Supreme Court and demanded that the cantonal judgements be overturned. The Federal Supreme Court dismissed the employer's appeal.

The dispute before the Federal Supreme Court was whether the employer actually had to pay the holiday allowance again. It had to be clarified whether the employee had worked regularly or irregularly in the specific case. The employee was employed full-time and the lower court considered this to be regular work, which is why the compensation of holiday pay with the current salary payment was not legal. The employer argued that due to the fluctuations in the workload, it should be assumed that the work was irregular.

The Federal Supreme Court confirmed its case law, according to which holiday pay can only be compensated with wages in exceptional cases. The conditions are very strict. This is only permitted in the case of very irregular working hours or irregular employment, namely in the case of part-time positions. In principle, irregular employment may also exist in the case of a full-time workload (recital 3.4).

The case law of the Federal Supreme Court aims to ensure that the employee actually has money available during their holidays. For this reason, holiday pay must generally be paid when the employee actually takes the holiday. Against this background, the exceptions must be very narrowly defined. In order for the payment to qualify as lawful, there must be insurmountable difficulties that make payment during the holidays appear impracticable (BGE 129 III 493 E. 3.3.).

According to the Federal Supreme Court, if an employee works for an employer 100% of the time, it is not clear why monthly fluctuations in working hours should lead to insurmountable difficulties in the payment of wages during holidays. The Federal Supreme Court has previously ruled that the variable salary alone does not justify an exception to Art. 329d CO. With today's systems, it should be possible to calculate holiday pay correctly in the event of salary fluctuations, i.e. it should not be unreasonable.

The Federal Supreme Court therefore comes to the conclusion that it is not permitted to pay holiday pay with the salary in the case of a 100% workload with one and the same employer. An exceptional settlement of the holiday pay entitlement due to monthly fluctuations in the salary owed is therefore excluded