The settlement of exit vacation pay by the new employer as of 1st January 2024

When an employee leaves a job and takes up a new one, both the former and the new employer will face several legal requirements regarding the entitlement to vacation days and the vacation pay to be granted for these days.

In general, an employee is entitled to a number of legal vacation days based on the performance of his professional activities during the previous calendar year. In this respect, we also refer to our previous alert about this topic. Additionally, the employee will receive the so-called vacation pay.
 

1. Termination of the employment contract

When an employment contract is terminated, either by the employee or the employer and regardless of the reason thereof (dismissal, resignation, end date of contract of definite duration,... ), the former employer is obliged to pay the so-called ‘exit vacation pay’.

This exit vacation pay consists of:

• PART 1: The vacation pay to which the employee is entitled based on his professional activities of the previous year, to the extent that this has not been paid during the current year. This part consists of 7,67% single exit vacation pay (for vacation days not yet taken during the current year) + 7,67% double exit vacation pay (in the event the employment contract is terminated prior to taking the main vacation, in practice prior to the month of May/June);
  
  E.g.: an employee was entitled to 20 vacation days. He has only taken 17 vacation days at the end of his employment contract on 30 November, 2024. He will then receive the single exit vacation pay of 3/20 x 7,67% of the total gross salary amounts received in the previous year January – December 2023;
  
  
• PART 2: The vacation pay to which the employee would be entitled next year based on his professional activities during the current year. In principle, the employee would only be entitled to the vacation pay for these activities in the year X+1. However, since the former employer is responsible for the payment of the vacation pay, the employee will already receive this vacation pay upon termination of the employment contract. This is also why this amount is often referred to as ‘the advance vacation pay’. This advance vacation pay also consists of 7,67% single advance vacation pay + 7,67% double advance vacation pay, a total of 15,34% calculated on the gross salary amounts of the current year.
  
  E.g.: the employment contract is terminated on November 30, 2024. The advance vacation pay will amount to 15,34% of the total gross salary amounts received in the period January – November 30, 2024

If the employee enters into service with a new employer, the new employer will have to take into account (i.e. deduct) the exit vacation pay paid by the former employer.

This principle is referred to as the settlement of exit vacation pay with the new employer. The modalities of this settlement are subject to a legislative change which entered into force on January 1st, 2024.
 

2. Settlement of exit vacation pay as of January 1st, 2024

Until the end of 2023, the new employer could deduct the full amount of the exit vacation pay at one time. This often occurred in the month where the new employer would pay the double vacation pay (in practice May/June). In practice, this resulted in the employees receiving very little or even no salary at all in this particular month.

As from 2024, it is no longer legally allowed to deduct the amounts representing the single vacation pay in the exit vacation pay at once. As from now on, this deduction should be processed either:

• Each time the employee takes a vacation day with his new employer; OR
• In two phases, a partial settlement when taking a vacation day with the new employer and a final settlement in December/month of contract termination. 

Although Belgian legislation foresees the two settlement calculation methods, in practice, we do expect that employers and their payroll agencies will opt for the settlement in two phases, as the first partial settlement is fairly straightforward and this method will be easier to manage from an administrative point of view. 

I. First phase

Each month an employee takes a vacation day with the new employer based on entitlements built-up with a previous employer, 90% of the salary amount for these vacation days are deducted.

In other words, the employee will only receive 10% of his gross salary on each vacation day.

II. Second phase

During the second phase, taking place in December or at the end of the employment contract, the final settlement is conducted.

The existing restriction, whereby the employer may not deduct more vacation pay than the vacation pay he would have owed if the employee had worked for him during the previous year, is maintained. This situation arises when the salary with the new employer is lower than the salary with the previous employer. The final settlement of the exit vacation pay must then be limited to the amount of the exit vacation pay that would have been due taking into account the current salary (see example below).

The final settlement is compared with what was already deducted throughout the year (see phase 1 above):

• If too much was withheld during the year, the employer will pay the employee the remaining amount;
• If too little was deducted during the vacation year, the employer will be allowed to deduct that excess single vacation pay from the employee's salary of December/last month (taking into account the general principles of the Wage Protection Act). 

Summarizing table of settlement methods of exit vacation pay

Example 1

Employee worked the entire calendar year 2023 full-time with company A (monthly gross salary 5.000 EUR). On January 1st, 2024 he enters into service with company B (monthly gross salary 6.500 EUR).

During 2024, the employee takes vacation days in March (4), August (10) and October (6).

Company B will have to settle the vacation pay as follows:

Phase 1: 90% deduction

• March: 4 vacation days / 21 working days: 4/21 x 6.500 EUR x 90% = - 1.114,29 EUR
• August: 10 vacation days / 22 working days: 10/22 x 6.500 EUR x 90% = - 2.659,09 EUR
• October: 6 vacation days / 23 working days: 6/23 x 6.500 EUR x 90% = - 1.526,09 EUR

Phase 2: final settlement

• ! First: check whether the deduction of the already paid vacation pay should be limited
• Annual salary with company A = 60.000 EUR (12 x 5.000 EUR)
• Fictious annual salary with company B = 78.000 EUR (12 x 6.500 EUR)
  • Company B > Company A → no limitation required

Single exit vacation pay paid by company A: 60.000 EUR (12 x 5.000 EUR) x 7,67% = 4.602
This is the amount to be settled with company B.

• March: 60.000 x 7,67% x 4/20 = 920,40
• August: 60.000 x 7,67% x 10/20 = 2.301
• October: 60.000 x 7,67% x 6/20 = 1.380,60 

Example 2

Employee worked the entire calendar year 2023 full-time with company A (monthly gross salary 5.000 EUR). On January 1st, 2024 he enters into service with company B (monthly gross salary 4.000 EUR).

During 2024, the employee takes vacation days in March (4), August (10) and October (6).

Company B will have to settle the vacation pay as follows:

Phase 1: 90% deduction

• March: 4 vacation days / 21 working days: 4/21 x 4.000 EUR x 90% = - 685,71 EUR
• August: 10 vacation days / 22 working days: 10/22 x 4.000 EUR x 90% = -1.636,36 EUR
• October: 6 vacation days / 23 working days: 6/23 x 4.000 EUR x 90% = -939,13 EUR

Phase 2: final settlement

! First: check whether the deduction of the already paid vacation pay should be limited

• Annual salary with company A = 60.000 EUR (12 x 5.000 EUR)
• Fictious annual salary with company B = 48.000 EUR (12 x 4.000 EUR)
  • Company B < Company A → limitation required!

Fictious single exit vacation pay with company B: 48.000 EUR (12 x 4.000 EUR) x 7,67% = 3.681,60
This is the amount to be settled with company B.

• April: 48.000 x 7,67% x 4/20 = 736,32
• August: 48.000 x 7,67% x 10/20 = 1.840,80
• October: 48.000 x 7,67% x 6/20 = 1.104,48

3. Additional mandatory information for employees

Other than the changes in calculation and deduction methods, both former and new employers will also face new obligations when informing the employee about the new modalities surrounding the exit vacation pay.

• Firstly, the former employer must now inform the employee in a comprehensible manner that the exit vacation pay is prefinancing the vacation days of the following year and that the new employer will pay vacation days only after deducting 90% of the daily gross salary. Both statements will have to be included in the vacation attestation issued by the former employer.
• Secondly, the new employer must inform the employee - upon inquiry by the latter - about the calculations and deductions of the vacation pay. This can be done by email or letter, as no information channel is prescribed.
• Finally, the new employer must inform the employee about the reimbursements or deductions following the final settlement of the vacation pay (i.e. phase 2). This must be done by including these amounts on the payslip of December or of the last month of employment.

In case of any questions with regard to your specific company or a specific employee, please do not hesitate to reach out to us: payrolloperate@be.ey.com, via your trusted EY advisor, or via our contact form.

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