What about the negative leave balance upon termination of employment?

As an employer, you may only offset a negative leave balance upon termination of employment against the final settlement if you have agreed to this in writing with your employee in advance. Without such an agreement, offsetting is legally uncertain: while the law regulates the payment of a positive leave balance, it does not explicitly regulate the recovery of excess vacation days taken. Judges rule on this matter inconsistently. Therefore, stipulate the possibility of offsetting in the employment contract and the employee handbook to avoid disputes upon departure.

What is a negative leave balance?

A negative leave balance arises when an employee has taken more vacation days than they have accrued at that moment. This is because an employee accrues vacation days throughout the year, in proportion to the period worked. Anyone who uses up almost all their annual vacation days in May or June is therefore temporarily "in the red".

As long as the employment continues, this is usually not a problem: in the second half of the year, the employee automatically makes up the deficit. It only becomes an issue when the employee leaves while the balance is still negative. At that point, you must decide what happens to that deficit during the final settlement.

Example. An employee with 20 statutory vacation days per year takes 15 days in July and has accrued approximately 11 days by that time. The balance is then about 4 days negative. If he remains employed, that shortfall disappears automatically. If he leaves on September 1st, the balance is still negative, and the question arises whether you are allowed to offset those excess days taken.

How many vacation days does an employee accrue?

The law stipulates a minimum. Pursuant to Article 7:634 of the Dutch Civil Code, an employee is entitled to at least four times the number of agreed working days (or working hours) per week in statutory holiday per year. A few examples:

• Anyone who works 40 hours (5 days) per week is entitled to a minimum of 20 statutory vacation days per year.
• Anyone who works 32 hours (4 days) per week accrues proportionally fewer statutory days (16 days in this example).
• Anyone who starts employment halfway through the year accrues on a pro rata basis: approximately half of the annual entitlement.

In addition, the employer and employee can extra vacation days beyond the statutory minimum . These extra days are often stipulated in the employment contract or collective labor agreement. It is important to distinguish between statutory and extra-statutory days, as different rules apply to them, for example regarding limitation periods and expiration.

Because accrual is spread throughout the year, typically only slightly more than half of the annual vacation days have been accrued by around the summer. If an employee takes almost all their days during that period, there is a risk of a negative balance.

Are you allowed to offset a negative leave balance upon termination of employment?

This is the core of the discussion. While the law stipulates that an employer must pay out a positive leave balance at the end of employment, it says nothing explicit about recovering a negative balance. As a result, judges' rulings vary.

Broadly speaking, two lines can be discerned in case law:

• No set-off without an agreement. Following this line of reasoning, there is no legal basis to recover excess days taken from the employee. If the employer has not made it clear in advance that a shortfall will be set off, this can be interpreted as a favor from which he cannot unilaterally withdraw. The shortfall then becomes the responsibility of the employer.
• Set-off is possible, however. Another approach views excess vacation days taken as a form of advance payment on wages. Upon termination of employment, this "advance" must be repaid, allowing the employer to deduct the negative balance from the final settlement via debt set-off.

Both viewpoints recur in rulings by various courts, sometimes with opposing outcomes. This makes the legal outcome unpredictable. It is therefore always preferable not to have to rely on case law, but to properly establish the settlement in advance.

What should you pay attention to when settling?

Even if settlement has been agreed upon, limits apply. In any case, take the following into account:

• Written agreement. Explicitly stipulate the possibility of set-off, preferably in the employment contract and the employee handbook.
• Attachment-free amount and minimum wage. Set-off against wages is not unlimited; statutory protection rules apply to the employee. Never simply set off the entire net wage.
• Substantiation. Ensure that your leave records are accurate and that you can demonstrably calculate the negative balance.
• Communicate in a timely manner. At the end of the employment, clearly state that and how you will settle the account, so that the employee is not surprised by a lower final settlement.

This is how you avoid discussions about the negative leave balance

The uncertainty in case law is most easily resolved by making clear agreements in advance. Specifically, we at MKB Juristen advise the following:

1. Include an offsetting clause. Agree in the employment contract that any negative leave balance may be offset against the final settlement.
2. Check your employee handbook. For existing employees, a new contract offers no solution. Therefore, document the arrangement in your employee handbook and bring it to the attention of your team.
3. Maintain accurate leave records. This way, you will see in time when someone is heading towards a negative balance and can discuss it with them before it accumulates.
4. Be cautious with large advances. Refusing a leave request is not always easy, but you can influence the taking of days. Read our tips on refusing a leave request.

Frequently asked questions about a negative leave balance

May I deduct excess vacation days from the final salary?

Your position is strong only if you have agreed to this in writing beforehand. Without an agreement, set-off is legally uncertain, because the law does not explicitly regulate the recovery of a negative balance and judges rule differently on the matter. Therefore, always record the possibility of set-off.

What happens to a negative leave balance if nothing has been agreed?

In that case, the outcome is uncertain. In some case law, the shortfall is borne by the employer because there is no statutory basis for set-off. In other rulings, however, it is regarded as an advance payment to be repaid. It therefore varies from case to case.

Does this also apply to extra-statutory vacation days?

The discussion primarily revolves around excessive days taken in general. For days exceeding the statutory minimum, you generally have more flexibility to make your own arrangements, for example regarding accrual, use, and settlement. Statutory days offer more mandatory protection.

Can I offset a negative balance against outstanding vacation days?

Sometimes the deficit is offset by a positive balance of other (for example, days exceeding the statutory minimum) days. In that case, you can offset them against each other. If the net balance is negative, the uncertainty regarding offsetting against wages described above applies.

Do I always have to pay out a positive leave balance upon termination of employment?

Yes. If the employee still has outstanding unused vacation days upon departure, you must in principle pay these out in the final settlement. This is the exact mirror image of a negative balance: there is a clear legal basis for paying out a credit, but not for recovering a deficit.

How exactly do I calculate the negative leave balance?

First, determine how many vacation days the employee has accrued up to the date of termination (pro rata to the period worked) and subtract the days taken. If the balance falls below zero, that is the negative balance. Convert the shortfall into cash using the daily or hourly wage. Accurate leave records make this calculation verifiable, which is important if the employee disputes the settlement.

Have your leave agreements legally checked

Do you want to be certain that you can legally offset a negative leave balance? At MKB Juristen, we review your employment contract and employee handbook and ensure a watertight offsetting clause. We also think along with you regarding an ongoing dispute concerning vacation days. View our expertise in employment law, read more about our legal assistance , or schedule an intake meeting directly, and we will answer your questions immediately.