Holiday pay is earned the year before the holidays are taken and paid instead of ordinary pay during holiday absence. Employees who did not work the previous year are also entitled to holidays, but not to holiday pay.
The right to holiday pay is linked to the term ’employee’, i.e. someone working in the service of another. The legislation does not give freelancers and self-employed contractors the right to holiday pay.
Employees are entitled to four weeks + one day holiday each year. Employees over the age of 60 are entitled to one additional holiday week.
An employee’s holiday pay is calculated on the basis of pay and other work remuneration to the employee during the earning year. The calculation basis does not include payments to cover travel expenses, a share of the net profit or holiday pay paid during the earning year.
The holiday pay is 10.2% of the basis for holiday pay. For employees over the age of 60, the rate is 12.5%. The above calculation will normally result in a holiday pay that is approximately equal to what the employee would otherwise have received in ordinary pay for the holiday period.
If the agreed number of holiday days exceeds that required by law, the percentage will be increased correspondingly. If you are covered by a collective agreement or other agreement that entitles you to a fifth holiday week, the ordinary rate is 12% (14.3% for employees over 60). The holiday pay is part of the employee’s taxable income like any other income, and you must pay employer’s National Insurance contributions when it is disbursed.
Holiday pay is money you ‘set aside’ on behalf of your employees and must be recognised as a liability item in your accounts. You cannot pay it as part of the ordinary pay unless it has been expressly agreed in the enterprise’s collective agreement.
In accordance with Norwegian legislation holiday pay is paid out on the last ordinary pay day before the holiday period, or no later than one week before the holidays start. However, it is common to agree upon one fixed month in which the holiday pay is paid out (for example June). In this case the employees will receive ordinary salary in the holiday period if this is carried out at a different time (for example in July).
On leaving, employees shall be paid the holiday pay they have earned up until the date they leave. Such payment shall normally take place on the last pay day before the employee leaves.
Holiday pay that is disbursed during the holiday year is not subject to tax withholdings, so the employer must not deduct any tax. If, on the other hand, the holiday pay is disbursed during the earning year, the employer must calculate tax.
The employers are required to provide an annual summary of salary, benefits, reimbursements and pensions which they have been paid. This summary replaces the previous Certificates of Pay and Tax Deduction.
Source: altinn.no / Norway Today