How do you calculate the equivalent payment for unused holiday leave?

A longer period of service does not alter one fact. If a contract ends with unused holiday entitlement, the employer must either pay the employee for that time or grant it as time off in lieu, where the law permits.

When is a cash payment for unused annual leave due?

The rule stems directly from Article 171(1) of the Labour Code. When an employment relationship is terminated or expires, and annual leave has not been taken in full or in part, the employee receives a cash payment in lieu. This is not a benefit granted at the employee’s request, but rather an obligation on the part of the employer. The settlement should cover the final period of employment with the same care as the final payslip.

“On the date of termination of the employment relationship, the employee’s right to annual leave in kind is converted into a right to a cash equivalent for unused leave.”

– Monika Wojciechowska, lawyer at Nicolaus Copernicus University in Toruń

This entitlement applies exclusively to persons employed under an employment contract. In the case of a B2B contract, a contract for services or a contract for specific work, the mechanism is different, as statutory annual leave does not apply here. The mere fact of working with a company does not in itself create a right to a cash equivalent. What matters is the existence of an employment relationship and the unused annual leave attached to that relationship.

As long as the employment continues, as a general rule, no payment is made for current or outstanding leave. The employee takes time off in kind, and the employer grants it in accordance with the schedule or by mutual agreement on the dates. Only the termination of employment converts this obligation into a financial settlement. An exception arises when the parties agree otherwise within the limits provided for by the regulations.

An employee’s contract ends on 30 June and they still have 7 days’ holiday remaining. In such a situation, there is an obligation to pay an equivalent in lieu of these days, as it is no longer possible to take them as time off in lieu. If, however, the employee gives notice on 30 June but the contract continues for the notice period, the mere submission of the notice does not yet determine the outcome. The entitlement to the equivalent arises on the date the employment relationship ceases, not on the date of notice.

Are there any exceptions to the payment rule where annual leave is carried over to the next contract rather than being paid out in cash?

Section 171(3) of the Labour Code provides for an exception to the rule on payment of the equivalent. The employer is not required to pay it if the parties agree that the annual leave will be taken whilst the employee remains in employment under a subsequent employment contract concluded with the same employer immediately after the termination or expiry of the previous contract. What matters is the continuity of employment and the same employer.

Article 171(3) of the Labour Code

‘The employer is not obliged to pay the cash equivalent referred to in § 1, where the parties agree that the leave is to be taken whilst the employee remains in an employment relationship under a subsequent employment contract concluded with the same employer immediately following the termination or expiry of the previous employment contract with that employer.”

Labour Code

The condition of immediacy has practical significance. The new contract must commence immediately after the previous one, with no gap between the contracts. If there is even a one-day gap, or if the employer changes, the mechanism for carrying over leave ceases to apply in the same way. In such cases, the standard rule of settling unused days in cash applies.

There is often talk of a so-called tripartite agreement, i.e. arrangements between the current employee, the current employer and the future employer. This practice is sometimes encountered, but it does not stem directly from the Labour Code’s framework for carrying over leave between two different employers. This may give rise to a dispute during an inspection, as the regulations refer to subsequent employment with the same employer. When the new employer is different from the previous one, the leave does not automatically transfer with the employee.

For those planning to change companies, the choice is therefore very clear. In the case of direct continuation of employment with the same employer, leave can be taken in kind and the cash equivalent avoided. When changing employer or terminating employment without a subsequent contract, you must set aside funds to cover unused days. It is precisely here that the difference between a simple HR formality and a costly mistake most often arises.

The equivalent rate – how is it determined for a given year and full-time position?

The equivalent coefficient is determined separately for each calendar year. It is calculated by taking the number of days in the year, minus Sundays, public holidays and non-working days resulting from an average five-day working week, and then dividing this by 12 months. This mechanism is set out in Section 19(2) of the Regulation of the Minister of Labour and Social Policy of 8 January 1997.

The full-time coefficient is calculated as the number of working days in a year divided by 12.

The holiday coefficient in 2026

“In 2026, the holiday coefficient for a full-time employee is 20.92.”

2026

For full-time employment, the coefficient varies according to the calendar of the year in question. Data from recent years have shown values of 20.83, followed by a different value after a change to the public holiday schedule, and from the start of 2026 – 20.92. This is important when settling outstanding holiday entitlement from several years ago, as it is the year in which the holiday pay is paid that counts, not the year in which the entitlement to the days off was first acquired.

For part-time employees, the coefficient is reduced in proportion to their working hours. With the full coefficient of 20.92, for three-quarters of a full-time position it is 15.69, for half a full-time position – 10.46, for one-third of a full-time position – 6.97, and for a quarter-time position – 5.23. However, this simple conversion does not alter the method of calculation itself; it merely changes the starting point.

Calculation of the equivalent coefficient in previous and current years

“The coefficient is re-determined each year (…) A new value of the coefficient applies for 2025 (…) The equivalent coefficient must always be calculated for the year in which the payment is made.”

2025–2026

From a practical point of view, it is safest to remember one rule: the year of payment determines the coefficient. So, if someone is settling outstanding annual leave from the previous year at the end of their employment in the following calendar year, they should use the value applicable on the day the equivalent payment is made. This ensures that the calculation remains consistent with the current calendar of public holidays and the arrangement of working days.

What is included in the basis for the equivalent payment and what must not be added?

The basis for the equivalent is used to determine the base amount before dividing it by the coefficient. The holiday regulations distinguish between three groups of remuneration components. These are fixed monthly pay components, variable components payable for periods of up to one month, and variable components payable for periods longer than one month. Each group is calculated differently and must be allocated to the correct reference period.

Fixed monthly components, such as a fixed-amount basic salary, are taken from the month in which entitlement to the equivalent arises. Monthly variable components, such as statutory bonuses or commissions calculated monthly, are usually averaged over the three months preceding the month in which entitlement arose. Components covering a period longer than one month, such as quarterly or half-yearly bonuses, are taken as the average of the last twelve months. This provides a picture of actual earnings, rather than being influenced by a single high or low month.

Section 15 of the Regulation of the Minister of Labour and Social Policy

“The basis for calculating the equivalent shall include elements of remuneration specified as a fixed monthly rate and elements of remuneration payable for periods not exceeding one month.”

Regulation of the Minister of Labour and Social Policy of 8 January 1997

One-off and incidental payments are excluded from the base. Task-based bonuses for the one-off achievement of a target, long-service awards, remuneration for sick leave, on-call duty, downtime, or retirement or disability severance payments are not included. Remuneration for annual leave is also excluded, as it is subject to a different calculation from the equivalent. This separation of components prevents the basis from being artificially inflated or deflated.

A basic salary of 5,000 zł plus an average monthly bonus of 1,000 zł gives a base of 6,000 zł, provided both components meet the eligibility criteria. If the bonus were a one-off discretionary payment, such an allowance would have to be disregarded. This is where errors most commonly arise in manual calculations, as the name of the allowance alone does not determine its status. What matters is its nature, frequency and method of calculation.

Special rules apply, amongst others, to teachers. In their case, the base is also made up of allowances related to length of service, working conditions or role, whilst overtime hours are sometimes averaged according to separate school regulations. Similar exceptions also apply to other occupational groups covered by special pay regulations. Therefore, before calculating the equivalent itself, it is necessary to know whether the person in question falls under the standard Labour Code model or is subject to a separate pay scheme.

The formula for calculating the equivalent for unused holiday leave, from the base pay to the hourly rate?

The best way to illustrate the equivalent payment for unused holiday is through a simple series of steps. First, you determine the calculation base. Then you divide it by the coefficient applicable for the given year. Next, you divide the resulting amount by the standard daily working time, usually 8 hours. Finally, you multiply the result by the number of hours of unused holiday. It’s a brief but very precise method.

When calculating by hand, omitting a single step can result in a noticeable difference even for just a few days’ leave.

The hourly rate is only calculated after dividing by the standard working hours. Only then is it multiplied by the number of hours of outstanding leave.

For a full-time position with a gross salary of 4,000 zł, the calculation looks like this: 4,000 zł ÷ 20.92 = 191.20 zł. PLN 191.20 ÷ 8 hours = PLN 23.90. PLN 23.90 × 56 hours’ holiday = PLN 1,338.40 gross. This is the amount before deductions. From an accounting perspective, this is just the start of the settlement process.

For a part-time role, the mechanism remains the same. Only the input parameters change. If an employee’s coefficient is reduced in proportion to their working hours, the base amount is divided by a lower value, and the hourly rate increases or decreases in line with their actual pay. This is why two employees may have the same number of hours of accrued holiday leave but a completely different final amount.

In non-standard systems, the daily standard may differ from eight hours, for example in the case of equivalent working time or a sector-specific rota. In such cases, rather than automatically entering eight, you must use the actual standard applicable to the employee in question. This approach prevents errors in cases where a single working day is shorter or longer than the standard.

When must an employer pay compensation, and what are the consequences of a delay?

Compensation for unused holiday entitlement must be paid when the employment relationship ends and the employee still has unused days off. The obligation arises upon the termination or expiry of the employment contract; it does not apply to a simple change to the work schedule or to a situation where the employment continues. If the employee still has leave in kind remaining and the contract remains in force, money does not replace the days off. Nor can the employer postpone payment to an unspecified date simply because payroll matters are still pending.

The payment date is linked to the last day of employment or to the next pay day, if that date falls after the employment relationship has ended. In practice, this means that the equivalent should be included on the payslip alongside other final payments. If the pay day falls on a public holiday, the money should be paid earlier, i.e. on the preceding day. This protects the employee from a situation where their contract has formally ended but they are still waiting for the funds due to them.

When finalising the settlement, it is advisable to check not only the date of termination of the contract but also the company’s policy on setting payment dates. If the salary is usually paid on the tenth day of the month and the employment relationship ends earlier, the equivalent payment should be included in that very pay packet, provided the due date falls after the employment has ceased. For the HR department, this is the point at which the payroll must be synchronised with the holiday records and the number of unused holiday hours. A single error at this stage immediately results in an underpayment or a delayed payment.

A delay may result in liability for a breach of the employee’s rights. In such cases, it is not only the failure to make the payment that matters, but also exceeding the statutory deadline or the agreed deadline for final settlement. A fine can be a real risk for the employer, especially when the delay affects a large number of people and is repeated upon subsequent terminations of contracts. For the employee, this provides grounds to claim the amount due, together with interest for late payment.

Failure to pay the equivalent amount on time may constitute a breach of the employee’s rights and result in a fine.

It is also important to distinguish between the obligation to pay and subsequent adjustments to the payroll. If, following the termination of the contract, it transpires that part of the remuneration was calculated incorrectly or that holiday entitlement was totalled incorrectly, the employer cannot pretend the matter does not exist. The correction should be made without delay, as the severance pay is a final payment and does not await a convenient internal settlement. The sooner the HR and financial documentation is finalised, the lower the risk of a dispute over the missing amount.

If you wish to assess the accuracy of the payment yourself, check three things. First, the date on which the employment relationship ended. Next, the company’s standard pay day. Finally, compare this with the number of holiday hours remaining to be settled and ensure that the bank transfer was made without delay in relation to these dates.

Frequently asked questions

Is the payment for unused annual leave calculated on the gross or net amount?

It is calculated on the gross amount, and then social security contributions and an advance on income tax are deducted from this sum. For a gross salary of 4,000 zł and 56 hours’ holiday, the equivalent payment is 1,338.40 zł gross, whilst the net amount will be lower.

Which contributions reduce the amount of the equivalent paid into your account?

Pension, disability, sickness and health insurance contributions, as well as an advance payment of income tax, are deducted from the holiday pay. This means that, from the gross amount of PLN 1,338.40, the employee does not receive the full sum into their bank account.

When settling holiday entitlement spanning several years, is the coefficient from the year in which the holiday entitlement arose used?

No, the coefficient from the year in which the equivalent is paid out is used. For a full-time position in 2026, it is 20.92, whilst in 2025 the values were 20.83 and 20.75, depending on the period.

How do you adjust the coefficient of 20.92 for part-time work?

For a 3/4-time position, it works out at 15.69; for a 1/2-time position, 10.46; for a 1/3-time position, 6.97; and for a 1/4-time position, 5.23. The same calculation applies to each pay period, using the value appropriate to the relevant working hours.

If the working pattern is 5 hours a day and Saturdays are working days, is annual leave always multiplied by 8 hours?

No, you must use the employee’s actual daily working hours, rather than automatically assuming 8 hours. If a working day lasts 5 hours, then one day’s holiday corresponds to 5 hours, so the calculation is based on the work schedule.

How is the calculation worked out when an employee has 5 days’ annual leave or 7 days’ annual leave?

With a salary of 8,000 PLN and 5 days’ holiday, the equivalent is 1,912.00 PLN gross for 40 hours, as 8,000 ÷ 20.92 equals 382.41 PLN per day. With 7 days’ holiday and a salary of 4,000 PLN, the equivalent is 1,338.40 PLN gross for 56 hours, so the number of days alone significantly affects the final amount.

Sources

• https://kalkulatory.gofin.pl/kalkulatory/kalkulator-ekwiwalentu-za-urlop-wypoczynkowy
• https://www.biurokarier.umk.pl/wysokosc-ekwiwalentu-pienieznego-za-niewykorzystany-urlop-wypoczynkowy