The holiday and public holiday pay in labor, social security, and tax law

Employment law
Based on § 6 of the Holidays Act, which qualifies as regular remuneration the remuneration that the employee would have received if the holiday had not been taken, the principle of the accrual and entitlement principle is derived from § 2, paragraph 2, of the General Collective Agreement. In particular, overtime hours worked are considered part of the regular remuneration; they would have been to be provided based on the work schedule if the holiday had not been taken.
Due to these standardized conditions, all performance-related bonuses and wages (e.g., overtime) must be included in calculating the regular remuneration. The calculation is based on the average of the last 13 completed weeks (3 months) before the start of leave, with only exceptionally performed work excluded. The calculation method for determining the amount of leave pay can be governed by a collective agreement. The principles for calculating the regular remuneration apply to both leave and holiday pay.
The following section discusses the different treatment in social security law (the principle of default and entitlement) and in tax law (the principle of accrual).

Social Security Law
Accurate calculation of the fee

As outlined in the introduction, each component of the salary must be included. However, expenses (e.g., diet allowances, travel expenses, etc.) are not included. Average last 12 months of final salary is applicable for termination fees. Normal social security contributions must be paid up to the maximum contribution base.

Calculation example
In a precise calculation (6-day week), for example, the following procedure should be followed if a collective agreement does not provide for any other arrangement:

Vacation allowance
Sum of the paid performance-related wages (e.g. overtime) for the last 13 weeks (3 months)
S 20,000/(3 x 4,333) = S 1,538 vacation allowance for a week

Holiday pay
S 20,000/(3 x 4,333 x 6) = S 256,– holiday pay for 1 holiday

Flat calculation of the fee
If – for whatever reason – no exact calculation of the remuneration has been made or it has not been paid at all, social insurance is mandatory based on the aforementioned entitlement principle of a fictitious remuneration. In the event of a social insurance examination, a contribution demand is then to be expected.
The lump-sum calculation is carried out as follows: Starting from 5 vacation weeks and 2 weeks for public holidays per year, it is assumed that for 7 weeks the performance-related wages are to be used as the basis for calculating contributions. The sum of these calculated annual gross wages for overtime, etc., is to be divided by 45 (52 minus 7 weeks) and multiplied by 7.

Calculation example
Annual gross compensation for overtime etc. S 80,000,–

(80,000 x 7)/45 = S 12,444,– holiday and public holiday pay

When billing as a current contribution, it is important to ensure that the maximum contribution base is not exceeded in the billing month (usually December). If this is the case, one or more months must be rolled over in order to fall within the maximum contribution base each time. In the case of an IT salary calculation, in the event of non-payment of these fees, complications arise due to the lump-sum contribution calculation, because it then does not correspond to the actual salary calculation. The lump-sum contributions, consisting of the employer and employee contributions, are service costs for the employer. The employee contribution is not individually attributable to the employee and therefore does not affect the later pension calculation either. The employee does not derive any additional benefit from the assumption of the employee contribution by the employer based on the employment relationship.

Social Security Law
Unlike social security law, which is governed by the principle of entitlement, in tax law, pursuant to § 19 of the EStG, the accrual principle applies. This means that only those wages actually paid are subject to tax under the wage tax rate. The same applies to the DB, the DZ, and the KommSt.

Conclusions for practice
The described situation once again highlights the complexity of wage calculation, especially the calculation of social security contributions, which is derived from labor law but is not governed by tax law.
Employers who want to avoid a contribution increase based on a social security assessment can also perform the above-mentioned calculation themselves if they want to avoid the complicated daily calculation or if they do not want to pay these fees at all because they have reached an agreement with their employees (e.g., payment of higher basic allowances in a lump-sum calculation method that is considered too administratively demanding). It should be noted that in this case, the social security contributions will already be deducted from the higher wages, and therefore there is no additional contribution base.

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