Confusion surrounding holiday pay: why some get more and others less

Dik van Leeuwerden, expert in the field of legislation and regulations at payroll processor ADP, points out an important point: tax rates. “There is a tax credit on that tax, which depends on your personal situation,” he explains. “Put simply, you pay more tax on your holiday pay than on your normal salary.” This can lead to an unexpected drop in the amount paid out, especially for those above a certain income level.

‘Not everyone is worse off’

Take, for example, someone who earns three times the average income, about 10,185 euros per month gross. With the extra holiday pay, this can significantly increase the annual income and lead to a tax refund. Van Leeuwerden illustrates this with an example: “Suppose you earn 3,000 euros average gross per month. The system then thinks that you will earn 36,000 euros. With extra holiday pay you will end up higher and in trouble, because then you have suddenly earned too much and you have to pay back.”

But not everyone is worse off. Van Leeuwerden indicates that people who earn below average will probably receive more holiday pay this year. “For example, if you earn 1,750 gross per month, you will receive an additional 587 euros in holiday pay,” he says. However, the net year-over-year increase may be disappointing to some.

Another interesting point is the variation between full-timers with different working hours. “Average full-time workers with minimum wage (36 hours) receive slightly less holiday pay. But those who work 38 and 40 hours receive more, because they have a higher monthly wage,” Van Leeuwerden explains.

But why does this remain such a confusing topic every year? “It could be easier, yes, but only partly,” Van Leeuwerden agrees. “For example, a Wajong benefit, AOW and work are now taken into account when you look at the right to an employment tax credit and a general discount. That’s the rub, those two discounts are income-related.” He calls for more clarity from the government to make the process from gross to net and the calculation of holiday pay more transparent.