Potential changes to holiday pay

Unlike most other European countries, holiday and holiday pay are separate rights in Norway. While all employees are legally entitled to holidays from their first year of employment, holiday pay is currently paid out the year after it is earned (the qualification year). Employees who were not in paid employment the year before the vacation year do not receive holiday pay to cover the income lost during the holiday. 

The EFTA Surveillance Authority has questioned whether the Norwegian accrual system for holiday pay is in conflict with the EU’s Working Time Directive. According to that directive, employees are entitled to four weeks of paid vacation per year. 

With this background, a committee was established in the spring of 2023 to investigate the current rules and propose changes. 

The committee’s investigation report assesses the possibilities of replacing the current accrual system with a new one, where holiday pay is accrued and paid out the same year. Three different models for this are presented without a recommendation on which one should be introduced. The models vary in complexity and structure. The government has now sent the investigation report out for general consultation. The consultative bodies are asked to give their views on the models presented in the report. 

For employers, a restructuring would mean that the economic advantage of managing employees’ holiday pay interest-free for a whole year would disappear. Many businesses will need to make adjustments in their liquidity management due to a sudden system change. Releasing holiday pay to all employees who are in the system could also have consequences for inflation and interest rates. 

To mitigate the negative consequences of a possible system change, the committee believes there will be a need for a transition arrangement. The current and new accrual systems can operate in parallel during a transition phase. In this context, the investigation report presents alternative solutions, both for when employee groups should switch to the new system and for how outstanding vacation pay should be paid out. 

How a final transition arrangement will look will be a topic for further legislative work. 

The general consultation now in progress may be a first step towards transitioning to a new accrual system for vacation pay in Norway. The consultation deadline is 21 October 2024.