Holiday allowance 2019: Answers to some questions currently arising in practice

Previously holiday allowance was considered as an employment relationship income. At the time of payment of the allowance, the employer had to calculate and pay the advance payment of personal income tax and additionally account for and pay social security contributions for that part of the allowance exceeding 70% of the average salary of the previous month in Slovenia.

This means that if in 2019 an employer pays an employee a holiday allowance between EUR 886.63 gross (gross minimum wage in the Republic of Slovenia for the period until 31 December 2019 as provided in the Employment Relationships Act) and 100% of the last known average gross wage according to the data of the Statistical office of the Republic of Slovenia  (which currently amounts to EUR 1,752.34), the holiday allowance will be entirely exempted from the taxation and will not be included in the basis for the payment of social security contributions. The employer can pay higher holiday allowance or must pay such if it is so stipulated in the employment contract, employer’s internal acts, collective agreement etc.; however, in such case, the part of holiday allowance exceeding 100% of average wage will be subject to same taxation as wages. 

These amendments are raising a number of questions and below are some of the answers:

1. What to do if an employee has taken up employment in the middle of the year or if an employee changes an employer in the middle of the year and has already received holiday allowance for the entire year?

An employer must pay holiday allowance until 1 July for the year in question; however, if an employee has taken up employment later and has the right to proportional annual leave the proportional part of holiday allowance is paid, as a general rule, immediately upon taking up the employment (normally with the first wage). If the employer has, however, already paid the entire holiday allowance to the employee whose employment relationship was terminated before the end of the year, the employer can request repayment of the proportional part of the holiday allowance – the employer shall inform the Financial Administration of the Republic of Slovenia (FURS) that the employee returned the proportional part of the holiday allowance. If the employee fails to do so, the employer has to pay in any case the social security contributions from the difference of such “overpaid” holiday allowance, and the new employer must also pay the employee a proportional part of the holiday allowance (irrespective whether the employee has already received a year-end allowance with the previous employer).

2. Will employers (and employees) who have already declared and paid holiday allowance for 2019 and mandatory taxes and contributions be reimbursed? 

These taxes and contributions will be reimbursed to the employers if the holiday allowance paid for 2019 does not exceed 100% of the average wage. FURS will reimburse these ex officio directly to the employee or the employer. To this end FURS will issue a decision by 30 June in which it will state that the overpayment of the advance payment of personal income tax and the overpaid social security contributions (declared and paid on employee’s account) are returned to the employee and overpaid social security contributions (declared and paid on employer’s account) are returned to the employer. Employers who “rushed” with payment of the allowance will not be subject to negative consequences.

3. What if an employer pays the allowance it in two or more parts?

Employers may pay the holiday allowance in several parts, but they must pay the minimum amount of holiday allowance as determined by the Employment Relationships Act (ZDR-1) (minimum wage in the Republic of Slovenia) for the current year by 30 June. The amount of entire holiday allowance to be included in the basis of the income from employment will be determined when the last part of holiday allowance is paid; at the same time the advance payment of personal income tax will be paid and the already paid advance payments from each part of the holiday allowance will be set off. The employer has to make sure that when the last part of holiday allowance is paid the amounts are added up and must determine whether in the entire year the employee received a holiday allowance of more than 100% of the average wage.

4. An employer has paid entire holiday allowance to an employee who only has the right to a proportional part of the annual leave. What next?

If an employee is entitled only to a proportionate part of the annual leave (because the employee was employed mid-year, works part-time, etc.), the amount of the allowance, which is not subject to the payment of taxes and contributions, should be proportionately reduced, since the right to holiday allowance is linked to the right to annual leave.