Is Holiday Allowance Included in Salary or Paid on Top? What Employers and Mid-Market Businesses Need to Know in 2026

You're reviewing a job offer from your Netherlands team, and the candidate just asked: "Does that €65,000 include holiday allowance, or is it on top?" Your UK finance director assumes it's included. Your Dutch hiring manager says it's separate. And you're sitting there wondering how a straightforward salary conversation became a compliance puzzle.

Whether holiday allowance is included in salary or paid on top depends on the country, the employment contract, and sometimes the employment model you're using. In parts of Europe (notably the Netherlands), holiday allowance is commonly a separate payment on top of base salary. In many other countries, paid holiday is integrated into normal salary. In the United States, paid holiday is generally discretionary rather than a statutory right, so employers set their own policy entirely.

For scaling mid-market companies with teams across countries, the goal isn't perfect uniformity. It's fair, transparent total compensation that you can explain to candidates, defend to auditors, and budget accurately. Employees care less about the label and more about whether holiday pay is fair and transparent.

Key Takeaways

• In the Netherlands, holiday allowance (vakantiebijslag) is commonly set at 8% of gross salary as a separately identifiable entitlement, and employers frequently pay it annually or pro-rate it per pay period
• In the European Union, the statutory minimum paid annual leave entitlement is at least 4 weeks (20 working days for a 5-day workweek) under the Working Time Directive
• In the United Kingdom, statutory holiday entitlement is 5.6 weeks per leave year, which equals 28 days for a full-time employee working 5 days per week
• In the United States, there is no federal requirement for private employers to provide paid holidays or paid vacation
• For budgeting in multi-country hiring, Teamed recommends modelling Dutch offers at 108% of quoted base salary when the offer is stated as "excluding holiday allowance"

Is Holiday Allowance Included in Salary or Paid on Top

Holiday allowance is a contractual cash entitlement that is paid in addition to, or as a separately identified component of, regular wages to fund paid time off. It's most commonly structured as a percentage of gross pay in jurisdictions such as the Netherlands.

The answer to whether it's included or paid on top hinges entirely on two things: local law and your contract wording.

In some countries, holiday pay is part of normal salary during paid leave. You take a week off, you get paid your normal weekly rate. No separate line item. In others, allowance is a clearly labelled extra payment that appears distinctly on payslips and invoices.

The difference matters when you're comparing offers. A Dutch offer stating "€60,000 base salary excluding holiday allowance" typically results in €64,800 gross cash compensation when the standard 8% holiday allowance is added. A "€60,000 inclusive" offer keeps total gross cash at €60,000 but splits it into base and allowance components by contract.

Always compare total compensation, not just headline salary. This becomes critical when you're hiring across borders and trying to maintain equity between roles in different countries.

How Holiday Pay Works for Salaried Employees and Hourly Workers

Holiday pay is the remuneration an employee must receive while taking statutory annual leave. In most European systems, it's intended to reflect the employee's normal earnings rather than a reduced "basic pay only" amount.

For salaried employees, the calculation is usually straightforward. They receive a fixed amount per pay period regardless of exact hours worked. In many European contexts, they continue to receive normal pay during statutory leave, so holiday pay appears fully integrated. There's no separate calculation because their salary already covers it.

For hourly workers, it gets more complex. Holiday pay is often calculated using an average of recent earnings to cover variable hours, overtime, and commissions. The averaging approach smooths out fluctuations but can feel less intuitive to employees who don't understand the formula.

In the US, exempt salaried workers are handled differently from non-exempt workers. The rules around whether pay varies around holidays depend on exemption status, not just whether someone is "salaried."

Mixed workforces need clear, transparent explanations of calculations for each group. When you've got salaried staff in London, hourly contractors in Amsterdam, and exempt employees in Austin, each group needs to understand how their holiday pay works. Confusion breeds disputes.

Holiday Allowance in the Netherlands and Other European Markets

In the Netherlands, "vacation money" is traditionally a separate payment calculated as a fraction of annual pay. The statutory minimum paid annual leave entitlement is 4 times the weekly working hours, which equals 20 days for a full-time employee working 40 hours per week.

Dutch holiday allowance (vakantiebijslag) is a legally recognised additional pay component that is commonly calculated at 8% of gross salaryDutch holiday allowance (vakantiebijslag) is a legally recognised additional pay component that is commonly calculated at 8% of gross salary. It must be accounted for transparently in payroll and employment documentation. Most employers pay it as a yearly lump sum around late spring, though some spread it across the year as a distinct payslip line.

In the Netherlands, employees often ask whether the salary figure is before or after vacation money. If you don't clarify this in your offer letter, expect the question.

The UK, Germany, France, and Spain handle things differently. Paid annual leave is usually at normal pay. There's no separate "holiday allowance" line item because the concept doesn't exist in the same way. Employees take leave and receive their regular salary during that time.

Country	Holiday Allowance Treatment
Netherlands	Typically separate and visible (8% of gross)
UK	Integrated at normal pay
Germany	Integrated at normal pay
France	Integrated at normal pay
Spain	Integrated at normal pay

Be explicit in offer letters about whether quoted salaries in the Netherlands include or exclude a separate holiday allowance. Ambiguity here creates problems at exit when you're calculating final payments.

Holiday Pay Rules in Europe, the UK and the United States

European Union member states must ensure workers receive at least 4 weeks of paid annual leave each leave year under Directive 2003/88/EC. This statutory leave cannot be replaced by a cash payment except on termination. Holiday pay generally must reflect normal earnings, not just basic pay.

In the United Kingdom, statutory holiday entitlement is 5.6 weeks per year under the Working Time Regulations 1998. An employer generally cannot pay a worker in lieu of taking statutory leave except when employment ends. UK case law has established that certain regular overtime and commission payments must be included in the baseline used to calculate holiday pay.regular overtime and commission payments must be included in the baseline used to calculate holiday pay.

The US is a different world entirely. The Fair Labor Standards ActThe US is a different world entirely. The Fair Labor Standards Act does not require payment for time not worked, including holidays or vacation. Paid leave and holiday pay obligations are created by employer policy, collective bargaining agreements, or state law where applicable. There's no federal baseline.

This creates a real risk for companies expanding from the US into Europe. Leaders who assume holiday pay is discretionary everywhere can find themselves underpaying in Europe or creating compliance exposure they didn't anticipate.

How to Calculate Holiday Pay and Holiday Allowance

For salaried staff in most European countries, holiday pay equals normal weekly or monthly pay. Leave days are treated as if worked. No special calculation required.

For hourly staff, the calculation typically uses an average of recent earnings. This covers variable hours, overtime, and commissions. The averaging period varies by jurisdiction, but the principle is consistent: holiday pay should reflect what the employee would have earned if working.

Dutch-style holiday allowance is calculated as a fraction of gross annual salary, typically 8%. It can be paid as an annual lump sum or spread across pay periods as a clearly labelled allowance. Holiday allowance paid as an annual lump sum differs from holiday allowance paid monthly in cash-flow timing. The annual model concentrates payout into a single pay period while the monthly model spreads the same annual cost across 12 payroll runs.

In the UK, medium and large engagers must perform an IR35 status assessment for many contractor engagements. Misclassification findings can trigger backdated tax and National Insurance liabilities, which is one reason holiday entitlements are scrutinised when roles resemble employment.

Document your calculation method, configure payroll systems accordingly across countries, and review when entering new markets. What works in one jurisdiction may not translate.

How Mid-Market Companies Should Structure Holiday Pay in Different Countries

Our board wants consistency, our employees want fairness, and each country has its own rules. Sound familiar?

Start by defining a global philosophy. Are you meeting statutory minimums everywhere, or offering a consistent global standard that may be more generous in some markets? Both approaches work, but you need to pick one and stick with it.

Then choose your structure. You can bake allowance into base salary everywhere, or separate it where local practice expects a distinct line (like the Netherlands). In cross-border offer benchmarking, Teamed treats "holiday allowance included" versus "paid on top" as a 7% to 10% swing in visible annual cash compensation in markets where a separate allowance is customary.

Align your stakeholders. People, Finance, and Legal must use the same assumptions for offers, payroll setup, and budgets. When your offer letter says one thing and your payroll system calculates another, you've got a problem.

Communicate clearly. When the same role exists in multiple countries, explain the differences. A UK employee earning £60,000 and a Dutch employee earning €60,000 plus 8% holiday allowance aren't receiving the same compensation. If you don't explain this, employees will compare notes and feel unfairly treated.

Holiday Pay Considerations for Scaling Companies with Two Hundred to Two Thousand Employees

Holiday pay stopped being a payroll tweak and became a board-level topic the moment we hit 500 people in five countries.

As headcount grows across countries, inconsistent holiday pay practices can trigger audits, employee relations issues, and budget surprises. What seemed like a minor administrative detail at 50 employees becomes a material risk at 500.

Regulated sectors face heightened scrutiny. Financial services, healthcare, defence, and technology companies operating in multiple jurisdictions need documented, defensible approaches to statutory benefits. Auditors and regulators expect you to demonstrate compliance, not just claim it.

Standardise documentation. Offers, handbooks, and payroll policies should specify treatment of holiday allowance by jurisdiction. For mid-market employers (200 to 2,000 employees) running parallel EOR and entity payrolls, Teamed flags that inconsistent holiday allowance presentation can create a 1-pay-period reconciliation gap in finance reporting when allowances are paid as annual lump sums rather than accrued monthly.

Finance needs accurate total cost models. In Teamed's global employment cost modelling methodology, holiday allowance is treated as cash compensation rather than an employer on-cost. This means it increases gross payroll totals and can affect bonus targets, pensionable pay definitions, and severance calculations where those are based on "gross remuneration."

How EOR Providers, Contractors and Owned Entities Treat Holiday Allowance

An Employer of Record (EOR) is a third-party organisation that becomes the legal employer for workers in a given country, running locally compliant payroll, statutory leave, and benefits while the client company directs the employee's day-to-day work.

An EOR arrangement differs from an owned entity in legal responsibility. The EOR is the legal employer accountable for statutory leave administration, while an owned entity places the compliance and payroll liability directly on the company.

EOR providers mirror local statutory rules and common practice. In the Netherlands, they'll handle vacation money as a separate allowance. But presentation on invoices and reports can vary between providers. Ask for clarity on how holiday allowance appears in your cost breakdowns.

Contractors are different entirely. Employee holiday pay differs from contractor time-off economics in entitlement. Employees must receive paid annual leave under European statutory regimes while contractors generally have unpaid time off that's compensated indirectly through higher day rates.

If someone looks and feels like an employee, regulators expect them to receive employee-style holiday rights. This is where misclassification risk rises. When contractor roles look and feel like employment without holiday rights, you're creating exposure.

Owned entities give you direct control but require local legal and payroll expertise. You're responsible for compliance, calculation, and communication. No one else to blame if you get it wrong.

Holiday Pay Compliance Risks for Companies Hiring in Five or More Countries

Underpaying in Europe happens when companies assume separate allowance is optional or exclude regular bonuses and commissions from holiday pay calculations. UK case law has made clear that certain regular payments must be included. Getting this wrong creates backdated liability., a risk highlighted by the 900% surge in UK tribunal claims following clearer calculation rules. UK case law has made clear that certain regular payments must be included. Getting this wrong creates backdated liability.

Overpaying or duplicating benefits happens when global policies are pasted into low-obligation markets like the US but become company commitments. You intended to offer a baseline, but your handbook language created an enforceable promise.

Inconsistent treatment across groups creates equal pay and discrimination concerns. When permanent employees in one country receive different treatment than those in a neighbouring country, or when contractors doing similar work have vastly different arrangements, you're creating risk.

Ambiguous contract language drives disputes. Phrases like "salary including holiday allowance" without a numeric breakdown lead to arguments on exit or during audits. Be specific. Show the maths.

Review contracts and payroll data by country as a simple first step. Identify where your documentation is unclear and where your practices may not match your policies.

Turning Holiday Allowance Decisions into a Coherent Global Employment Strategy

Both models work. Holiday allowance included in salary or paid on top can both be compliant and fair. What matters is that you comply with local law and communicate clearly.

Move from ad hoc choices to a documented global approach. Cover each employment model and country. Make decisions once, document them, and apply them consistently.

The sequence is straightforward: audit current practice, map local rules, agree a philosophy, update contracts and policies, align payroll, train hiring managers to explain offers. It's not complicated, but it requires coordination across People, Finance, and Legal.

In regulated sectors, holiday pay decisions tie directly to compliance, workforce planning, and cost control. These aren't administrative details. They're strategic choices that affect your ability to hire, retain, and operate across borders.

If you're making six-figure decisions about entities, EORs, and contractor conversions, Teamed can advise on how holiday allowance fits into your wider employment model, then execute once the strategy is agreed. Talk to the experts.

Frequently Asked Questions About Holiday Allowance and Salary

How can I tell if my salary offer already includes holiday allowance?

Look for phrases like "including holiday allowance" in the offer or contract. Ask for a breakdown of base pay and any separate holiday pay, and confirm how it will appear on your payslip. If the employer can't provide this breakdown, that's a red flag.

What happens to accrued holiday allowance if an employee leaves part way through the year?

Employers typically calculate unused statutory holiday and related allowance up to the leaving date. They either pay it out or offset it against excess holiday already taken, subject to local law. The calculation method should be specified in your employment contract.

How should holiday allowance and holiday pay appear on an employee payslip?

Show holiday allowance clearly. Either fold it into normal pay or display it as a separate line, especially in the Netherlands. Employees should be able to see the calculation basis and verify they're receiving what they're owed.

Can an employer in the Netherlands roll separate holiday allowance into base salary?

Sometimes possible with clear written wording and careful compliance with Dutch rules. Obtain local legal or advisory input before adopting this approach. The contract must explicitly state the inclusive structure and provide a worked breakdown.

How should a mid-market company standardise holiday pay across different countries?

Map local minimums, set a global baseline that meets or exceeds them, and publish simple guidelines on when allowance is shown separately versus included in salary per country. Document your approach and train hiring managers to explain it.

How do Employer of Record providers usually handle holiday allowance and vacation money?

Reputable EORs follow local practice. In the Netherlands, they'll handle distinct vacation money. Request a clear explanation of calculation and how it will be shown on invoices and payslips. If they can't explain it clearly, consider that a warning sign.

What is mid-market?

Companies between startups and large enterprises. Typically a few hundred to a couple thousand employees, or revenue in the tens of millions up to around one billion pounds. These are organisations where employment decisions are material but resources are limited.or