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Holidays or payment in lieu?

Far an employment contract with an hourly wage and compensation for holiday by payment in lieu, the question arises as to how the wage is to be correctly indicated in the employment contract. Read more.

Holidays or payment in lieu?

When drafting the employment contract, however, it must always be borne in mind that what is agreed in writing is legally valid only if it does not contradict mandatory regulations (e.g., the law and collective agreements or standard employment contracts).


So what information should be included in a written employment contract? This issue can be clarified by consulting the law. By law, the following minimum requirements must be included in an employment contract:

  • Names of the employer and employee
  • Date of commencement of employment
  • Function of the employee
  • Wage and any wage supplements
  • Weekly working hours (if any has been agreed)

Payment in lieu is not always right

By law, the employee must be paid the entire wage lost for holiday periods (possibly including compensation for payment in kind). In practice, however, paid holidays are often not granted for hourly paid positions. Rather, the holiday entitlement is deemed to be compensated by means of a vacation supplement. However, this is contrary to the general prohibition on payment in lieu imposed by the law on holidays. According to (still) current case law, payment in lieu for holidays by means of a holiday supplement is therefore only permissible for very short-term or very irregular work. Moreover, even if payment in lieu by means of a holiday supplement is permissible, this must be shown separately both in the employment and on every payslip. Consequently, wordings such as “hourly wages including holidays” or the like are insufficient.

Keeping payment in lieu clear

If holidays are paid in lieu by means of a supplement, even though the condition of very short-term or irregular work is not met, or if supplements are inadequately identified in the employment contract or in the individual pay statements, there is a risk – particularly after the end of the employment – that the former employee will be take the view that he/she did not take paid holidays during the period of employment and that he/she is therefore due payment for the open holiday balance. The employer has a bad deal in such cases: on the one hand, a violation of the prohibition on payment in lieu is not generally protected by the courts; on the other hand, if the holiday supplement is inadequately identified in the employment contract and/or on the pay statements, the employer may not be able to prove that payment in lieu for holiday by means of a supplement has been validly agreed upon or that payment has actually been made in lieu of holidays. There is a risk that the employer may have to pay a second time for the holidays of previous years. In addition, however, even for valid payment in lieu for holiday by means of a pay supplement, it must be noted that the employee is still entitled to actually take holiday, i.e., to be exempt from work.

The following holiday supplements must be paid on top of the hourly wage:

  • 4 weeks holiday + 8.33 per cent
  • 5 weeks holiday + 10.63 per cent
  • 6 weeks holiday + 13.04 per cent


The law student who performs very occasional legal searches for the company next door: due to the irregular use of the services, payment in lieu for holidays by means of a wage supplement seems to be justifiable according to the existing case law. The trainee who gathers initial professional experience over a period of 6 months and (excepting holidays taken) works an average of 8 hours every day of the week: the employment is neither irregular nor very short. The trainee must be granted paid holidays. Payment in lieu by means of supplements is not advisable. The cleaner who cleans the offices of a company in Zurich every Tuesday and Wednesday for two hours each day: The employment is regular, however the pay supplement is expressly permissible in view of the part-time work according to the cantonal standard employment contract.

Exception for domestic help

For cleaning employees in private households (not to be confused with cleaning workers employed in the cleaning industry), the federal standard employment contract for domestic employees (“NAV Hauswirtschaft”) and, for example, the normal employment contract in the Canton of Zurich for domestic workers must be taken into account. The provisions of the federal standard employment contract for domestic worker include a minimum wage for cleaning employees who on average spend five or more hours per week working for the same employer. Contrary to the general prohibition of payment in lieu for part-time workers, the cantonal standard employment contract for domestic workers then declares the payment in lieu of the holiday entitlement by means of a holiday supplement to be expressly permissible. However, payment in lieu by means of a supplement expressly requires a written agreement and the separate indication of the supplement in the employment contract. In the case of full employment, however, payment of money in lieu for holidays is also excluded.

Advance clarification is important

In summary, payment in lieu for holidays must always be shown separately in the employment contract and on each pay statement. However, payment in lieu for holidays is only permissible if specific conditions are met. Otherwise, there is the risk that holidays will have to be paid for twice. It is therefore worth having the individual case circumstances and employment contracts checked by a specialist in good time, because illegal agreements often become expensive afterwards.

Published: 1. December 2016

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