Regardless of the grounds for termination of the employment contract, the employer is obliged to pay compensation for unused paid annual leave.
This right applies even in cases where the employment contract has been terminated on disciplinary grounds.
During an active employment relationship, unused leave cannot be compensated in money, nor transferred to a subsequent employer.
Conditions for payment of compensation
For an obligation to arise for the employer to pay compensation under Article 224 of the Labour Code (КТ), the following conditions must be present:
- Termination of the employment contract;
- The worker or employee has unused paid annual leave;
- The leave has not been extinguished by limitation.
The right to compensation is held by every worker or employee who has at least one month of length of service.
Limitation period for taking the leave
Paid annual leave must be taken within 2 years of the end of the year to which it relates.
If this period expires, the right to take it is extinguished by limitation, regardless of the reason for it not having been used.
Exception: Limitation does not apply to leave accrued up to 31 December 2009.
This old leave is not lost, and upon termination of the employment contract compensation is due for it under Article 224 of the КТ.
If the taking of the leave has been postponed, for example due to temporary incapacity for work or maternity leave, the limitation period begins to run from the end of the year in which the reason has ceased to exist for the postponement.
Date on which the right to compensation arises
The right of the worker or employee to receive compensation under Article 224 of the КТ arises on the day of termination of the employment contract.
It is irrelevant whether the termination order expressly states that such compensation is due.
Amount of the compensation
The compensation for unused paid leave is calculated as at the date of termination of the employment contract.
Formula for calculation:
The basis for the calculation is the average daily gross remuneration for the last calendar month preceding the termination in which the worker worked at least 10 working days.
The average daily gross remuneration is calculated by:
- The gross remuneration accrued being divided by the number of days worked;
- The resulting amount being adjusted by a coefficient.
Remuneration included in the compensation
In practice, disputes often arise as to which additional remuneration must be included in the gross remuneration besides the basic salary and the remuneration for length of service.
Social security contributions and taxes
On the compensation under Article 224 of the КТ, no social security contributions are due.
The employer is obliged to withhold only 10% tax under the Personal Income Tax Act (ЗДДФЛ).
The compensation must be paid upon termination of the employment contract, without it being necessary for the worker or employee to send a written request to the employer.
Compensation upon the death of the worker or employee
Upon the death of the worker or employee, the compensation under Article 224 of the КТ is paid to his heirs.
In this case, the employer must receive an official request for payment, accompanied by a certificate of heirs.
Set-off against other compensation
❗ Important:
The compensation under Article 224 of the КТ cannot be set off against other obligations of the worker to the employer.
For example, if the employee terminates his employment contract without notice, the employer cannot set off the compensation due for unused leave against the compensation for non-observance of the notice period.
Compensation in the event of unlawful dismissal
Compensation under Article 224 of the КТ is also due for the period during which the worker was left without work due to unlawful dismissal.
The case-law, however, is not uniform:
- Some courts award compensation for the entire period from the termination of the contract until the entry into force of the court decision.
- Other courts limit this period to 6 months.
Time limit for bringing a claim
If the employer does not pay the compensation, the worker or employee may bring a claim before the court within a 3-year period from the date of termination of the employment contract.
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