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Does receiving a benefit from the Unemployment Insurance Fund affect the amount of an employee’s holiday pay?

06.04.2020


A reader asks: The employer has reduced wages pursuant to section 37 of the Employment Contracts Act and the employee has received wage benefits from the Unemployment Insurance Fund. In such a situation, how should holiday pay be calculated later on? Do you need to take the amount of the wage benefit paid by the Unemployment Insurance Fund into account? Will holiday pay be reduced on account of the reduced wages?

Answer by Meeli Miidla-Vanatalu, Deputy Director General of the Labour Inspectorate: By paying the benefit, the Unemployment Insurance Fund partially assumes the employer’s obligation to pay wages. Thus, the amounts paid by the Unemployment Insurance Fund must be taken into account later on when calculating holiday pay.

The holiday pay, however, is reduced on account of the reduced wages. This means that holiday pay is calculated on the basis of the employee’s average wages and if the reduction of wages pursuant to section 37 of the Employment Contracts Act also falls within this period, the annual holiday pay will inevitably decrease as well. 

Pursuant to subsection 3 (2) of the Regulation of the Government of the Republic No 91 of 11 June 2009 ‘Keskmise töötasu maksmise tingimused ja kord’ (Conditions and procedure for the payment of average wages), an exception is made only in case of lay-offs, stipulating that in order to pay a benefit for the termination of an employment contract for economic reasons or for not giving due notice, the number of working days and the wages that form the basis for calculating average wages will be reduced by the number of working days and wages for which the wages of the employee were reduced pursuant to section 37 of the Employment Contracts Act. However, this provision does not apply to the calculation and payment of holiday pay. 

Read more about the calculation and payment of average wages from the respective subsection of the Tööelu portal.

Please also see the information page about the necessary procedures needed to reduce wages:
 
Reduction of wages (pdf)

Read more:

Photo: Pixabay

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Does receiving a benefit from the Unemployment Insurance Fund affect the amount of an employee’s holiday pay?
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