Project time tracking

Easily calculate holiday provisions for the annual balance sheet - 3 methods

Behind the dry term "holiday provisions" lies an important business practice that not only fulfils legal obligations, but also offers advantages for employers and employees.
Calculate holiday provisions correctly for the annual balance sheet

As a responsible employee, the topic of holiday provisions can make you break out in a sweat at the end of the year. After all, juggling legal requirements, individual employee entitlements and the desire for efficient, accurate accounting takes up a lot of time! In this blog article, we take a deep dive into the world of holiday provisions, focussing specifically on the needs of financial employees. If you are struggling with the complex calculations of accruals and are looking for a tool to simplify this process, you should definitely read on.

Definition: What does holiday accrual mean?

The term holiday accrual refers to a preventative measure whereby unused holiday days within a financial year (remaining holiday) are recognised and reported in your annual balance sheet up to the balance sheet date.

If your employees have not used up their full annual leave entitlement in the current financial year, but would like to carry it over to the following year, you will have a fulfilment backlog. If your employees have not yet submitted their remaining holiday entitlement for the new year - i.e. planned it - this is known as an "uncertain liability". This in turn is subject to the Obligation to recognise provisions in accordance with § 249 HGB and requires the creation of holiday provisions.

You can calculate holiday provisions using various methods, taking into account the requirements of commercial and tax law. More on this later.

Calculate remaining holiday and simply tick off holiday provisions

Why do you need to create holiday provisions?

The German Commercial Code obliges you to § Section 249 HGB on the recognition of liabilities and thus for the creation of holiday provisions for outstanding holiday days (remaining holiday) of your employees. In addition, according to § Section 5 (1) EstG (Income Tax Act) The authoritative principle also applies to holiday provisions. In addition to all legal obligations, holiday provisions also offer advantages and security for both employers and employees.

On the one hand, you secure the legitimate entitlements of your employees with holiday provisions. They have the opportunity to take unused holiday days in the following year. Alternatively, there is also the option of having the remaining holiday paid out. This is particularly advantageous in the event of redundancy or the risk of your company becoming insolvent.

For employers, on the other hand, the holiday provisions shown in the balance sheet are an efficient way of keeping track of all your employees' holiday days. This allows you to draw conclusions about the future expenses associated with the remaining holiday and better calculate the financial burden. This clear overview gives you advantages in personnel planning. Communicating the remaining leave days to the HR department in the following calendar year via leave requests prevents the remaining leave days from lapsing. This gives you, as the HR manager, a more precise insight into your company's capacity planning.

Do you have to set aside holiday provisions?

Simple answer: Yes! In Germany, companies are obliged to set aside holiday provisions if their employees do not (or cannot) use all of their annual leave. The legal basis for this can be found in § Section 7 of the Federal Holiday Act (BUrlG). According to this regulation, the carryover of holiday days into the new year is only permitted under certain conditions - in principle, all holiday should be taken and granted in the current calendar year. Carrying over remaining holiday - and therefore the creation of holiday provisions - is only permitted in the case of personal or urgent operational reasons. If these exist, your employees are obliged to take the remaining holiday in the first three months of the new year. But beware: remaining holiday must also be granted by your company in the first three months!

The amount of the holiday provisions is determined by the holiday pay of your employees and the number of remaining holiday days. This remuneration would have been incurred if your employees had actually taken the holiday. In accordance with the requirements of commercial law, these are future personnel expenses that your company will have to bear additionally in the coming financial year. The holiday provisions take into account gross pay, non-wage labour costs and possible salary increases or special benefits such as holiday or Christmas bonuses.

Methods for holiday provisions

The larger your company, the more complex the calculation of holiday provisions for each individual employee. For this reason, case law permits the Calculation of holiday provisions (section 252 HGB) either as an individual calculation or as an average calculation. With the individual calculation, you determine the holiday accrual for each individual employee separately. Although this method provides precise results, it is extremely labour-intensive and time-consuming if you have a large number of employees. In such cases, the average calculation is an alternative. Here, all employees are considered as a group, which considerably reduces the amount of work involved. However, caution is advised in the case of strongly fluctuating salary structures, as there is a risk of over- or underestimation!

Holiday provisions must always be recognised in accordance with a defined method. Deviations are only possible in exceptional cases.

Individual calculation of holiday provisions - time-consuming but precise

With the individual calculation, you enter the hourly wage and the working time model of each individual employee as the basis for calculating the holiday provisions. Leave days that your employees have not taken are converted into working hours on the basis of the working time model. These working hours are then valued at the gross hourly wage of the respective employee. In addition, your employer's social security contributions are added. In this way, you can assign a monetary value - the relevant holiday pay - to each accrual. The individual calculation is therefore very precise, but also very time-consuming. Due to the high administrative effort involved, this method is more suitable for companies with a manageable number of employees.

Calculate individual holiday provisions

Practical example: Individual calculation of holiday provisions

According to her employment contract, Klara Schneider receives an annual gross salary of 40,000 euros from her employer. In addition, her employer pays a Christmas bonus of 2,500 euros. To calculate the relevant holiday pay, the employer's contribution to social insurance and other ancillary wage costs are also taken into account. This results in the following calculation:

Gross annual salary: 40,000 euros
+ Christmas bonus: 2,500 euros
+ employer's social security contribution: 5,500 euros
= 48,000 euros relevant holiday pay

Mrs Schneider is employed full-time by her employer and works five days a week. If public holidays are deducted, this results in a total of 248 days actually worked per year. Mrs Schneider still has six days of leave remaining. This results in the following calculation for the individual holiday accrual:

Relevant holiday pay: 48,000 euros
/ Actual working days: 248
* Remaining holiday days: 6
= 1,161 Euro Provision amount

The passive holiday provision - i.e. the provision amount - for Mrs Schneider would be EUR 1,161. The employer's finance department is obliged to state this provision amount in the tax balance sheet.

Calculating averages - less effort, less precision

When calculating the average holiday accrual, you go through similar steps, but without focussing on each individual employee. Instead, you divide your employees into groups and use the average values of hourly wages and working time models. The calculation is based on these group values. One possible basis for the groupings can be salary structures, such as mini-jobbers, part-time employees or managing directors.

Caution: This method is less precise than the individual calculation and can quickly lead to under- or overvaluation. Nevertheless, it is often used in large companies in particular, as it is more efficient due to the lower administrative costs.

Practical example: Average calculation of holiday provisions

The company Alleskönner GmbH has four employees and does not want to carry out an individual calculation of the holiday accrual for each employee. To calculate the relevant holiday pay, the finance department has to add together the annual gross wages, the Christmas bonus and the employer's social security contributions for all employees. This results in the following calculation:

Gross salaries: 270,000 euros
+ Christmas bonus: 25,000 euros
+ employer's social security contribution: 28,000 euros
= 323,000 euros applicable remuneration for the entire team

In order to obtain the actual annual working days of the four employees, the finance department of Alleskönner GmbH multiplies the working days per week by 52. Less the public holidays per year, this results in a value of 996 actual working days. The average calculation of the holiday accrual for the four employees looks like this:

Relevant holiday pay: 323,000 euros
/ Actual working days: 996
* Remaining holiday days: 24
= 7,783 Euro Provision amount

The finance department of Alleskönner GmbH recognises the amount of EUR 7,783 accordingly in the tax balance sheet.

Automated calculation of holiday provisions

Now you can't see the wood for the trees, can you? Depending on the size of your company, calculating remaining holiday days and holiday accruals can be more or less time-consuming. So that you don't have to spend your valuable time on manual calculations, we have a solution that supports you in calculating holiday provisions. With the ZEP Additional modules Overtime, absences & holidays and Prices & Receipts you not only save time, but also nerves when preparing your annual accounts.

Because: With the Prices & Receipts module (additionally bookable for ZEP Compact & already included in ZEP Professional), you can define an internal hourly rate for each employee that is used to calculate the relevant holiday pay. And thanks to the Overtime, Absences & Leave module, remaining leave days and all public holidays for your federal state are accurately mapped. Simply enter all the required parameters, such as annual leave, gross wages, etc., in the corresponding modules and you can - with the combination of both modules - take care of the holiday accruals for each employee individually at the touch of a button. To do this, proceed as follows in your ZEP:

How to calculate holiday provisions in your ZEP

As you can see, you can access the desired analysis with just a few clicks, select the reset period individually and simply export the data so that it can be easily transferred to your annual balance sheet. A little ZEP hack: You can also have this analysis sent to you automatically (in ZEP "Run in background") at a set interval.

Did that go too quickly for you and would you like to delve deeper into the subject? In our informative Webinars on project time recording you can ask all your questions about holiday accruals. You don't use ZEP yet, but want to take care of your holiday accruals right now at the end of the year? Our free trial version you can use it for 30 days as a full version with all the modules you want.

Tanja Hartmann CEP

Tanja Hartmann

Content Marketing Manager at ZEP

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