Answer: In the article, ¡°I am an HR manager. How do I calculate employees’ unused annual leave pay from last year?¡± we explained the calculation of the unused annual leave pay for the previous year. But a headache is that employees sometimes accumulate unused annual leaves from several past years. Due to the one-year limitation of labor dispute arbitration under the Labor Dispute Mediation and Arbitration, employees cannot take or encash any annual leave days that have exceeded the limitation unless the employer agree otherwise. Therefore, how to handle accumulated annual leave days from the past few years, while applying the rule of limitation of arbitration, is an issue that both HR managers and employees need to understand.
Let’s take Mr. Zhang who joined the company on May 1, 2021 as an example. Assuming that Mr. Zhang did not use his annual leave in the first year (2021-2022), the second year (2022-2023) and the third year (2023-2024) and did not ask the employer to pay for the unused annual leave. Mr. Zhang resigned on September 1, 2024 in the fourth year. And Mr. Zhang’s monthly wage has not changed in the past four years, which is RMB 5,000. How shall Mr. Zhang’s unused annual leave be settled?
At the time of Mr. Zhang resignation, the most important issues are whether the unused annual leave days from each year have exceed the limitation of arbitration, and how to calculate Mr. Zhang¡¯s annual leave days for the last year in which he did not work for a full year.
According to the provisions of the Labor Dispute Arbitration and Mediation Law, the limitation of employment arbitration is one year. According to Article 9 of the Implementation Measures for the Regulations on Paid Annual Leave for Employees, the annual leave not taken in a current year is allowed to be taken in the next year. The 5 days of Mr. Zhang¡¯s annual leave from first year (2021-2022) can be used between May 1, 2022 and May 1, 2023. If it is not used, starting from May 1 2023, Mr. Zhang must claim the unused annual leave pay before May 1, 2024, otherwise it will exceed the one-year limitation of arbitration. Since Mr. Zhang did not raise the claim to the employer before May 1, 2024, the five days of annual leave from the first year has exceeded the limitation of arbitration, even if he applied to the employment arbitration, he could not get upheld. Of course, the law does not prohibit the employer from paying Mr. Zhang the unused annual leave pay from the first year beyond the limitation of arbitration.
According to the same review method, Mr. Zhang’s total 10 days of unused annual leave in the second and third years (up to May 1, 2024) do not exceed the limitation of arbitration, and the employer shall settle and pay Mr. Zhang at the time of resignation. The calculation method is: 5000/21.75 * 10 * 200% = RMB 4,598.
Now we turn to the second issue. Mr. Zhang only worked partially in the fourth year (from May 1, 2024 to September 1, 2024, 123 days in total). The number of days of annual leave not taken from this period shall be calculated as: 123/365 * 5 = 1.68 days. The part less than one day shall be ignored, so Mr. Zhang¡¯s unused annual leave in the fourth year is 1 day. The employer shall settle and pay Mr. Zhang unused annual leave RMB 460 (5,000/21.75 * 1 * 200%).
Of course, if Mr. Zhang has used part of the days, the employer should settle Mr. Zhang’s unused annual leave pay based on the remaining days.
In addition, if Mr. Zhang’s employer has agreed on annual leave days that exceed the statutory number (for example, Mr. Zhang is entitled to eight days of annual leave instead of the statutory five days after working for one year), whether the extra days that have not been taken should be encashed is not stipulated by law at present. The judicial practice is that encashment agreement by both parties for extra days shall be binding.1Civil Judgment of First Instance of Labor Dispute between Yu Chunyan and Beijing Foreign Enterprise Deco Human Resources Service Shanghai Co., Ltd. Civil Judgment of Beijing Fengtai District People’s Court (2021) Jing 0106 Min Chu No.1789.If there is no related agreement or stipulation between the two parties in the employment contract or company rules, the prevailing practice in various regions (such as Beijing, Guangzhou, etc.) is that employees are not entitled to encashment for the extra days.2Guangzhou Intermediate People’s Court of Guangdong Province Civil Judgment (2022) Yue 01 Min Zhong No.921. ¡°In addition, Lei Wu and Haines Guangzhou Branch did not agree that additional welfare annual leave beyond the statutory annual leave should be compensated when it was not taken, so Haines Guangzhou Branch is not obligated to pay the unused additional annual leave pay.¡± Civil Judgment of Second Instance of Labor Dispute between Zhang Jihong and Huamei Fortune (Beijing) Technology Co., Ltd. Civil Judgment of the Second Intermediate People’s Court of Beijing (2021) Jing 02 Min Zhong No.4343.However, Shenzhen intermediate court in its 2015 guidance provides for the opposite rule.32015 Shenzhen Intermediate People’s Court Judgment Guidelines on the Trial of Labor Dispute Cases, SZFF (2015) No.13, Article 110. However, there is contrary case in Shenzhen. See Wal-Mart (China) Investment Co., Ltd. and Zeng Wengen Labor Dispute First Instance Civil Judgment of the People’s Court of Futian District, Shenzhen City, Guangdong Province (2019) Yue 0304 Minchu No. 23524. ¡°Exceeding the statutory annual leave is the welfare annual leave given by the plaintiff, but the plaintiff claims that the company stipulates that the welfare annual leave should be paid according to the normal daily wage standard while failed to provide evidence of agreements on the employment contract or company rules to prove it. Therefore this court rejects the claim.¡±
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Mr. Dong Wang has been in practice for over 20 years, specializing in business law, including employment law, commercial law, company law, and intellectual property law. Mr. Wang has earned respect and trust from his clients due to his professionalism, fidielty, and kindness.
Email: wangdong@royalaw.com
- 1Civil Judgment of First Instance of Labor Dispute between Yu Chunyan and Beijing Foreign Enterprise Deco Human Resources Service Shanghai Co., Ltd. Civil Judgment of Beijing Fengtai District People’s Court (2021) Jing 0106 Min Chu No.1789.
- 2Guangzhou Intermediate People’s Court of Guangdong Province Civil Judgment (2022) Yue 01 Min Zhong No.921. ¡°In addition, Lei Wu and Haines Guangzhou Branch did not agree that additional welfare annual leave beyond the statutory annual leave should be compensated when it was not taken, so Haines Guangzhou Branch is not obligated to pay the unused additional annual leave pay.¡± Civil Judgment of Second Instance of Labor Dispute between Zhang Jihong and Huamei Fortune (Beijing) Technology Co., Ltd. Civil Judgment of the Second Intermediate People’s Court of Beijing (2021) Jing 02 Min Zhong No.4343.
- 32015 Shenzhen Intermediate People’s Court Judgment Guidelines on the Trial of Labor Dispute Cases, SZFF (2015) No.13, Article 110. However, there is contrary case in Shenzhen. See Wal-Mart (China) Investment Co., Ltd. and Zeng Wengen Labor Dispute First Instance Civil Judgment of the People’s Court of Futian District, Shenzhen City, Guangdong Province (2019) Yue 0304 Minchu No. 23524. ¡°Exceeding the statutory annual leave is the welfare annual leave given by the plaintiff, but the plaintiff claims that the company stipulates that the welfare annual leave should be paid according to the normal daily wage standard while failed to provide evidence of agreements on the employment contract or company rules to prove it. Therefore this court rejects the claim.¡±