Employee Annual Leave Management

Key Takeaways

• Basic leave days range from 12-16 days depending on job conditions, plus 1 additional day for every 5 years of tenure
• Extended absence periods like unpaid leave over 1 month or sick leave over 2 months don’t count toward tenure calculations
• Companies only must pay for unused leave when employees quit or are terminated, otherwise can negotiate carryover up to 3 years
• A comprehensive internal leave policy is crucial for avoiding disputes and effective risk management

This article clarifies the most important regulations regarding annual leave under current labor law, helping business leaders master how to handle special situations for effective risk management and compliance assurance.

Basic annual leave regulations

Understanding the legal framework for annual leave is fundamental to building effective HR policies. Companies need to grasp the basic numbers to avoid calculation errors and common payroll processing mistakes.

According to Article 113 of the 2019 Labor Code, employees working a full 12 months receive paid annual leave days based on their working conditions:

• 12 days: For work under normal conditions
• 14 days: For underage workers, disabled workers, or those in heavy, hazardous, or dangerous jobs
• 16 days: For extremely heavy, hazardous, or dangerous work

A critical point many companies overlook is the tenure-based leave provision. For every 5 years of service with one employer, employees earn an additional leave day. An employee with 15 years of service gets 3 extra days beyond the base amount. This creates significant variation in workforce planning and effective payroll management.

For employees working less than 12 months, leave days are calculated proportionally based on actual months worked. This calculation formula will be detailed in the following section.

Which time periods don’t count toward tenure for additional leave days?

One of the most complex aspects of managing employee annual leave is accurately determining working time for tenure calculations. Errors here can lead to labor disputes.

Companies must note that not all employee absence time counts as working time for additional leave eligibility. According to Article 65 of Decree 145/2020/ND-CP, the following periods don’t count toward leave tenure:

• Unpaid leave time totaling more than 1 month per year
• Sick leave time exceeding 2 months per year
• Leave due to work accidents or occupational diseases exceeding 6 months per year

For example: If an employee takes 45 days of unpaid leave annually, only the first 30 days count toward tenure. The remaining 15 days are excluded. For employees with health issues, accurately tracking sick days is crucial for compliance with key payroll compliance principles.

This regulation requires companies to have systems that accurately track and categorize different types of leave to avoid calculation errors.

How to calculate leave in special situations?

Real business operations often encounter situations that don’t fit standard templates. Understanding calculations for each scenario helps companies handle them correctly and avoid risks.

When employees work less than 12 months

Leave days are calculated using the formula:

Example: An employee in normal conditions working 8 months gets (12 + 0) ÷ 12 × 8 = 8 leave days. Results are rounded using this principle: decimal fractions of 0.5 or higher round up to 1 day, and less than 0.5 rounds down.

This can create differences in borderline cases and should be integrated into professional payroll services.

When employees work less than a full month

A month qualifies if total working days plus paid leave days account for at least 50% of normal working days in that month.

Example: If a month has 22 working days per company schedule, an employee needs at least 11 working days or paid leave days for that month to count toward annual leave calculations.

Handling unused leave: payment, carryover, or employee forfeiture?

Managing unused leave is complex, directly affecting budget and labor relations. Incorrect handling can lead to costly disputes.

Employees who quit or are terminated

Companies must pay for unused leave days that employees haven’t taken at contract termination. This is a mandatory obligation under Article 113 of the 2019 Labor Code and cannot be negotiated otherwise.

Payment calculations are based on contract salary rates at termination. Companies must have systems that accurately track each employee’s remaining leave days to avoid disputes during contract settlements.

Carryover agreements up to 3 years

Law permits employees and companies to agree on leave carryover, but not exceeding 3 years at once. This requires mutual agreement and clear provisions in labor regulations or employment contracts.

Companies should carefully consider this as leave consolidation can create significant workforce gaps when employees take extended time off. Additionally, if employees quit during carryover periods, payment amounts can be substantial.

Employees who don’t proactively use leave

If employees continue working without taking leave, companies have no obligation to pay for unused leave days. This is an important change from the 2012 Labor Code.

If companies have flexible leave policies allowing employees to register registration but they don’t register, according to Official Letter 308/CV-PC from the Ministry of Labor, this can be considered employees waiving their leave rights for that year. This must be clearly stated in labor regulations to avoid disputes.

Managing annual leave systems isn’t just HR’s responsibility but part of the company’s risk management strategy. Leaders should proactively review internal policies to ensure strict compliance, transparent benefits, and avoid unnecessary disputes. Additionally, building standard employee benefits and using professional compliance services will help companies build effective benefit policies that contribute to talent retention.