Vacation Balance Calculation for Terminated Employees

Beginning in 2003, Social Security requires new treatment for vacations owed to terminated employees. The pending vacation days that the employee has at the time of termination must be distributed as part of the termination pay.

The vacation balance is calculated depending on the type of vacation days agreed upon in the employee's contract data. The most common types of vacation days are natural days and work days. Natural days includes all days in a month, including weekends and holidays. Working days are the days that the employee actually works and don't include weekends and holidays. The vacation balance calculation is different for each vacation days type.

Note:

Two other types of vacation days are also used in Spain—weeks or months. Calculation for all vacation types is discussed in this topic.

Calculating Pending Vacation Balance for Natural Days Vacation Type

To calculate compensation due to a pending vacation balance for employees with the natural days vacation type, use this formula:

Daily rate × Vacation balance (natural days)

Calculating Pending Vacation Balance for Work Days Vacation Type

To calculate the work days vacation type, you first convert an employee's daily rate to a work days daily rate. Then you can get the amount to be paid for vacation not taken by multiplying the work days daily rate times the vacation balance.

The formula to calculate the work days daily rate is:

Work days rate = Daily rate * 360 / (Annual work hours by Labor Agreement / 8)

Note:

This conversion rule is an example that considers the annual number of working days equal to Annual work hours by Labor Agreement / 8, because the most common work schedule is eight hours per day. You can adapt this rule to your specific requirements, modifying the element FNQ FM CONV VAC D.

To calculate compensation due to a pending vacation balance for employees with the work days vacation type, use this formula:

Work days rate * Vacations balance (work days)

Calculating Pending Vacation Balance for Weekly or Monthly Vacation Type

If the employee has a weekly or monthly vacation type, these vacation types must first be converted to natural days. In the case of a weekly vacation type, the system calculates the natural days by multiplying natural days by 7. In the case of a monthly vacation type, the system calculates natural days by multiplying natural days by 30.

Calculating Social Security Contributions for Vacation Pay of Terminated Employees

When the pending vacation days have been calculated, you need to calculate Social Security contributions. For you to do so, the vacation pay has to be distributed to the terminated employee. To distribute the vacation pay, you need to determine whether the number of vacation days to pay is equal to, less than, or greater than the number of days from the day after the termination date to the last period day. For example, if an employee's last day is April 27 and the period end day is April 30, you need to determine whether the number of vacation days to pay is equal to, less than, or greater than three days.

If the number of vacation days to pay is equal to or less than the number of days from the day after the termination date to the last period day, a calculation must be made to get the Social Security base, contributions, and reductions (if applicable) that correspond to those days in the current month. This separate calculation will generate a complementary liquidation in the same month that the regular Social Security liquidation occurs. If this is the case, a new section in the TC2 report needs to be generated.

If the amount of vacation days to pay is greater than the number of days from the day after the termination date to the last period day, you need to go to the following month to continue contributing for those extra pending vacation days (the difference between the total number of pending vacation days and the days after the termination date and last period day). Another calculation must be made that will generate another complementary liquidation.

Example of Vacation Pay Distribution

Here is an example of how vacation pay is distributed for a terminated employee:

Assume that an employee has a vacation type of natural days, with a value of 24 natural days per year. The employee is terminated on April 27 and had taken 2 vacation days since the beginning of the year. The vacations entitlement up to the termination date is calculated in the following way:

Assuming 30 days each are in January, February, and March, and 27 days are in April (up until the employee's termination), you get this result:

• (30 + 30 + 30 + 27 / 360) x 24 (natural days) = 7.8 days

• Round out 7.8 days = 8 days (vacation entitlement)

• 8 – 2 (vacation days taken) = 6 (vacation balance)

The vacation days are distributed in the following way:

In the termination month of April, the employee will contribute 27 contributed days to Social Security and 3 vacation days to complete the maximum 30 contributed days for a monthly employee. The pending 3 vacation days will be contributed for May to complete all the pending vacation days.

Generating a Unique TC2 Report for Pending Vacation Balances

Because the distribution of pending vacation pay can affect more than one pay period, you must generate a unique TC2 report to show all the different periods. The code for complementary reports for pending vacations is L13.