Holiday pay is paid as follows:
- Holiday account in a bank: The company creates a special vacation bank account in the employees name, into which vacation pay is deposited monthly, the employee receives the accumulated amount from the vacation account at the beginning of May each year.
- Payment with monthly wages: This is a very common arrangement, where accrued holiday hours/days are used and paid in the regular payroll at the end of the month when the holiday is taken. Below is an example of calculating holiday hours.
- Holiday pay disbursed before summer or holiday leave: Although less common now, this arrangement is described in the Holiday Act No. 30/1980. The methods above are much more widely used.
Example:
Holiday hours are found by finding the holiday percentage (10.17%/24 days, 11.11%/26 days, 11.59%/27 days, 12.07%/28 days, 12.55%/29 days or 13.04%/30 days) of total wages and dividing daytime hourly wages into this result. Daytime hourly wages are found by dividing 159,27 hours for office workers and 167,94 hours for shop assistants into fixed monthly wages. In the example here below, holiday time is calculated for a shop assistant.
- Daytime ISK 450.000
- Overtime ISK 50.000
- Total ISK 500.000
Daytime hourly wages are:
Fixed monthly wages ISK 450.000/167,94 (divisor) = ISK 2,679.53 per hour in daytime.
Holiday hours are:
Total wages 450,000 x 10.17% = 45.765/2.679,53 daytime hourly wages = 17,08 holiday hours.
When the wage earner goes on holiday, his hourly wages have increased to ISK 2,700 e.g. due to wage changes. His holiday hours are then calculated for the year at ISK 2,700 and not at ISK 2,679.53 each holiday hour.
Taxes must be paid of the holiday pay as well as all other fees, as this is a normal wage payment.