Part-time employment in Latvia is becoming increasingly common. It provides flexibility for both employers and employees, but in practice questions often arise about how to correctly calculate vacation pay and determine average earnings.

The Labour Law provides that employees working part-time have the same rights to annual paid leave as employees working full-time. However, calculation errors often occur when the methodology for determining average earnings is applied incorrectly or when certain situations are not taken into account, such as long-term absence (for example, parental leave).

This article outlines the most common mistakes in calculating vacation pay for part-time employees and provides a practical example of how such calculations are performed.

1. Mistake - incorrectly determining the length of annual leave

According to the Labour Law, every employee is entitled to annual paid leave of not less than four calendar weeks (28 calendar days), excluding public holidays.

It is important to remember that part-time work does not affect the length of annual leave. An employee working part-time is entitled to the same leave period as an employee working full-time.

The only difference is the amount of vacation pay, which is calculated based on the employee’s actual remuneration.

2. Mistake - incorrectly determining the basis for calculating average earnings

Vacation pay is calculated using the employee’s average earnings.

Average earnings are calculated based on the last six calendar months before the start of the leave, taking into account:

• salary

• additional payments (for example, overtime, night work, or work on public holidays)

• bonuses

The following are not included in the calculation of average earnings:

• previously paid vacation pay

• sick pay

• various allowances

• compensations

If the employee has not worked for six months, the average earnings are calculated based on the actual period worked.

3. Mistake - incorrect calculation of average earnings after a long-term absence

In practice, questions often arise about how to calculate average earnings in situations where an employee has been on a long-term absence before taking annual leave, for example, parental leave.

The most common mistake is attempting to calculate average earnings based on the last six calendar months, even if the employee did not receive any remuneration during that period.

In such cases, the average earnings should be calculated based on the remuneration received during the six calendar months before the start of the justified absence period.

If, after a long-term absence, the employee has resumed work and has worked for less than six months, the average earnings should be calculated based on the actual period worked.

This approach ensures that vacation pay is calculated fairly and reflects the employee’s previous level of remuneration.

4. Mistake - confusing daily and hourly average earnings

In calculating vacation pay, the following may be used:

• daily average earnings

• hourly average earnings

Daily average earnings are calculated by dividing the total remuneration for the last six months by the number of working days actually worked during that period.

Hourly average earnings are calculated by dividing the total remuneration by the number of hours worked.

If an employee has a summarised working time arrangement or a variable work schedule, in practice hourly average earnings are often used, from which the daily average earnings are then calculated.

5. Mistake - incorrectly determining the number of paid leave days

A common mistake is the assumption that vacation pay is calculated for all 28 calendar days.

In fact, vacation pay is calculated based on the working days during the leave period, not all calendar days.

For example, if an employee works a five-day working week, four calendar weeks usually correspond to 20 paid working days.

6. Mistake – failure to comply with the deadline for paying vacation pay

The Labour Law provides that vacation pay and remuneration for the period up to the start of the leave must be paid no later than one day before the leave begins.

An exception applies if the employee submits a written request asking for the payment to be made at another time, for example on the next salary payment date.

Practical example: calculating vacation pay for a part-time employee

Below is an example of how vacation pay is calculated for an employee working part-time with a variable work schedule:

1. Calculate the hourly average earnings

Hourly average earnings:

Gross remuneration ÷ hours worked = 4500 € ÷ 409 hours = 11 € per hour

2. Calculate the average number of hours worked per working day

Hours worked ÷ calendar working days during the 6-month period* = 409 hours ÷ 124 working days = 3.30 hours per day

*When calculating the average number of hours worked per working day, it is important to consider whether the employee had any justified absences during this period (for example, sick leave, annual leave, or other absences provided for by the Labour Law). In such cases, the respective days are excluded from the number of calendar working days and a reduced number of working days is used in the calculation.

3. Calculate the daily average earnings

Hourly average earnings × average number of hours worked per working day = 11 € × 3.30 = 36.28 €

4. Calculate vacation pay

If an employee is granted annual leave for four calendar weeks and there are 20 paid working days during this period:

36.28 € × 20 = 725.60 €

Therefore, the employee will receive 725.60 € in vacation pay for the leave period.

Conclusion

The calculation of vacation pay for part-time employees is based on the same principles as for full-time employees. However, in practice, errors often occur when average earnings, the number of paid days, or the calculation period are determined incorrectly.

Therefore, when calculating vacation pay, it is essential to correctly determine the average earnings calculation period and apply the calculation method established by the Labour Law.

If you want to ensure that payroll calculations, leave records, and the determination of average earnings in your company are carried out correctly and in compliance with regulatory requirements – contact us.

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