Paying the cash equivalent for unused annual leave (ekwiwalent) is one of the most important issues at the end of an employment relationship. Every employer must know the exact deadlines for paying this benefit and the consequences of missing them. Employees, in turn, should be aware of their rights, especially the possibility of claiming interest for late payment.
The leave equivalent is governed by the Labour Code (Kodeks pracy) and by long-standing case law of the Supreme Court (Sąd Najwyższy, SN). Knowing these rules helps avoid costly mistakes and employment disputes that may arise when an employment contract ends.
Legal basis of the equivalent for unused annual leave
Employees' rights to the equivalent for unused annual leave are set out in detail in the Act of 26 June 1974 – the Labour Code. These fundamental rules are the basis for all decisions on paying the leave equivalent when employment ends. How to work out the last salary when a contract ends mid-month is explained in our article on final pay after termination.
The Labour Code is the core legal regulation setting out the rules for acquiring the right to the equivalent for unused annual leave. These rules apply to all types of employment contracts, regardless of the form of employment or the reason why the employment ended
Under the general rules of labour law, an employee should use the annual leave due to them in kind, that is as actual time off. This basic rule is meant to ensure rest and recovery. In business practice, however, it often becomes impossible to take leave in kind for objective reasons.
The inability to take annual leave in kind most often results from the termination or expiry of the employment contract. In such cases labour law provides an alternative way of fulfilling the leave entitlement – a cash equivalent. This solution is exceptional and is used only when leave cannot be taken in kind.
The main provisions governing the leave equivalent include:
- Article 171 of the Labour Code – the legal basis of the equivalent (§ 1) and the deadline for paying it (§ 4–5, from 27 January 2026)
- Article 172 of the Labour Code – the rules for calculating the amount of the equivalent
- Article 173 of the Labour Code – the authorisation to issue a regulation on the rules for determining the equivalent (Regulation of 8 January 1997)
- Article 300 of the Labour Code – the reference to the Civil Code
The cash equivalent for unused annual leave is due to the employee only when the employment relationship is terminated or expires. The equivalent cannot be paid while the employment contract is still in force, even if the employee wishes so
The Supreme Court has repeatedly stressed that the leave equivalent is subsidiary to leave in kind. This means the employer cannot arbitrarily decide to replace annual leave with a cash equivalent if leave can be granted in kind.
Conditions for the right to a cash equivalent
The right to a cash equivalent for unused annual leave arises only on the day the employment relationship is terminated or expires, if for that reason the employee could not take the annual leave in kind. This condition is key to determining the employee's rights and the employer's obligations.
In the circumstances described above, the leave equivalent is due regardless of the type of contract between the parties. It does not matter whether it was a fixed-term or an open-ended contract. Equally important, the way the employment ended does not affect the right to the equivalent.
Cases giving the right to the leave equivalent:
- Expiry of the employment contract at the end of its term
- Termination with notice by the employee
- Termination with notice by the employer
- Termination without notice for reasons attributable to the employee
- Termination without notice for reasons attributable to the employer
- Termination by mutual agreement
The right to the leave equivalent applies regardless of the reason why the employment ended. Even termination without notice through the employee's fault does not deprive them of the right to the equivalent for unused annual leave
Particularly important is the Supreme Court judgment of 29 March 2001 (I PKN 336/00), which precisely determined when the right to the equivalent arises. According to this judgment, on the day the employment relationship ends, the employee's right to annual leave in kind turns into a right to a cash equivalent for unused leave.
According to the same judgment, the limitation period for a claim for the cash equivalent for leave not taken in kind, but not yet time-barred, also started running on that day. From 27 January 2026 the payment deadline is set directly in Article 171 § 4–5 of the Labour Code, and the limitation period runs from the day the claim became due (Article 291 § 1 of the Labour Code), that is from the end of that deadline. This means the employee has a set time to pursue their rights, and the employer must be aware of the consequences of late payment.
An employee's claims for payment of the leave equivalent become time-barred three years after the day they became due (Article 291 § 1 of the Labour Code). From 27 January 2026 the due date is set by the payment deadline in Article 171 § 4–5 of the Labour Code, not by the day the employment ended itself
There are also special cases in which the employer is obliged, under separate provisions, to cover the employee with insurance guaranteeing a cash benefit for the period of leave. In such situations the employee is not entitled to holiday pay or a leave equivalent under the Labour Code (Article 172¹ § 1 of the Labour Code).
An employee hired on a fixed-term employment contract until 31 December did not use 14 days of annual leave. Because the contract expired at the end of the period for which it was concluded and the employee could not take the leave in kind, they are entitled to a cash equivalent for 14 days of unused leave, paid on the wage payment date (Article 171 § 4 of the Labour Code) – for example on 10 January if wages are paid by the 10th of the following month. If the wage payment date fell before 31 December, the equivalent would have to be paid within 10 days of the contract's expiry (Article 171 § 5 of the Labour Code).
However, if the cash benefit for the period of leave from the insurance is lower than the holiday pay or leave equivalent due under the Labour Code, the employer is obliged to pay the employee the difference between these amounts.
Determining the due date for paying the equivalent
From 27 January 2026 the due date for paying the equivalent for unused annual leave is set directly in Article 171 § 4–5 of the Labour Code (Act of 4 December 2025, Journal of Laws (Dz.U.) 2026, item 25); before that it followed from Supreme Court case law. On the day the employment relationship ends, the employee's right to annual leave in kind automatically turns into a right to a cash benefit. Before the contract ends, it is worth knowing when an employer can order leave.
The employer pays the leave equivalent on the wage payment date set in accordance with Article 85 of the Labour Code (Article 171 § 4). If that date falls before the day the employment relationship is terminated or expires, the equivalent is paid within 10 days of that day, and if the last day is a day off work – on the preceding day (Article 171 § 5). Missing this deadline has legal consequences
The only exception to the obligation to pay is when, immediately after the employment ends, the parties conclude another employment contract and agree that the leave due to the employee will be used during it (Article 171 § 3 of the Labour Code). In that case there is no obligation to pay the equivalent, because the employee will be able to take the leave in kind.
Supreme Court case law has long held that the employee acquires the right to the cash equivalent for unused leave on the date the employment relationship ends. This principle is fundamental for applying the rules on the leave equivalent in practice.
Similarly, in its decision of 5 December 1996 (I PKN 34/96), the Supreme Court held that a claim for the cash equivalent for unused annual leave, whether for current or outstanding leave, becomes due on the day the employment relationship ends. This line of case law concerned the law before 27 January 2026 – today the due date is set by the deadline in Article 171 § 4–5 of the Labour Code.
| Type of leave | Date the right arises | Due date | Legal basis |
|---|---|---|---|
| Current-year leave | Day the contract ends | Deadline under Article 171 § 4–5 kp | Article 171 § 1 and 4–5 kp |
| Outstanding leave | Day the contract ends | Deadline under Article 171 § 4–5 kp | Article 171 kp; SN case law (I PKN 34/96) |
| Proportional leave | Day the contract ends | Deadline under Article 171 § 4–5 kp | Article 155¹ § 1 point 1 kp; SN resolution III ZP 26/97 |
The payment deadline is therefore fixed by law (Article 171 § 4–5 of the Labour Code). This means the date is precisely defined, and from the following day the employer is in delay.
The proportionality rule applies when paying the equivalent for current-year leave. The employee is entitled to an equivalent proportional to the period worked for the given employer in the year in which the employment ends (Article 155¹ § 1 point 1 of the Labour Code); outstanding leave from previous years is settled in full
Under the Supreme Court resolution of 20 August 1997 (III ZP 26/97), where the employment relationship is terminated and, for that reason, annual leave acquired in full is not used, the employee is entitled to a cash equivalent from the current employer corresponding to leave proportional to the period worked for that employer in the year in which the employment was terminated.
This rule also applies where the employment ended because the employee acquired pension rights. The reason for ending the employment does not matter – the proportionality rule applies in all cases.
A manufacturing company employed a worker for 8 months of a calendar year, after which the employment contract was terminated by mutual agreement. The employee had acquired the right to the full amount of annual leave but could not use it because the employment ended. In this case they are entitled to an equivalent proportional to the 8 months worked in that year, not to the full amount of leave.
It should also be stressed that paying the leave equivalent does not change the date on which the employment ends. In other words, paying the equivalent does not extend the employment: paying an employee the cash equivalent for leave not used because the employment ended does not extend the employment contract by the period of leave covered by the equivalent.
The employee's right to interest for late payment
When the employer does not pay the leave equivalent within the deadline set by labour law, the question arises whether the employee can claim statutory interest for late payment. This matters in practice, because it concerns the financial consequences of the employer's breach of its obligations.
The employee acquires the right to the cash equivalent for unused leave on the date the employment ends, and payment should be made within the deadline in Article 171 § 4–5 of the Labour Code. However, payment may not happen for various reasons – from the employer's financial problems to organisational errors.
The Labour Code does not directly regulate statutory interest for delay or default in paying the leave equivalent. This does not mean, however, that the employee cannot claim such interest
The key provision is Article 300 of the Labour Code, which refers to the Civil Code in matters not regulated by labour law. Under this provision, in matters not governed by labour law, the provisions of the Civil Code apply accordingly to the employment relationship, unless they conflict with the principles of labour law.
On the basis of this provision of the Labour Code, interest on late payment of the leave equivalent can therefore be claimed. The relevant provision here is Article 481 § 1 of the Civil Code, which is the legal basis for claiming interest for delay.
Under this provision, if a debtor is late in performing a monetary obligation, the creditor may demand interest for the period of delay, even if they have not suffered any damage and even if the delay results from circumstances for which the debtor is not responsible.
Rules for charging interest for delay:
- The right to interest arises automatically from the first day of delay in payment
- The employee does not have to prove any damage
- Interest is due regardless of the reasons for the delay
- The interest rate is the NBP reference rate + 5.5 percentage points (Article 481 § 2 of the Civil Code); the Minister of Justice announces it in a notice
- Interest is charged from the day after the due date
In November 2026 the statutory interest rate for delay is 9.25 per cent per year (NBP reference rate of 3.75% since 5 March 2026 + 5.5 percentage points). It changes together with the NBP reference rate
In practice, the interest rules mean that an employee who did not receive the leave equivalent on time can demand from the employer not only the amount due but also interest for each day of delay. This significantly increases the employer's costs and is an extra incentive to meet obligations on time.
An employee's employment ended on 31 December, and wages at the company are paid on the 10th of the following month, so the leave equivalent of PLN 3,000 was due on 10 January (Article 171 § 4 of the Labour Code). The employee received it only on 10 April. In this case the employer must additionally pay statutory interest for 90 days of delay, which at a rate of 9.25 per cent per year amounts to about PLN 68.
It is worth stressing that the right to interest is absolute and does not require any additional steps by the employee, such as a demand for payment or going to court. Interest accrues by operation of law from the day after the due date.
Special cases of paying the leave equivalent
In practice, various special situations may arise when applying the rules on the leave equivalent, requiring an individual approach and knowledge of detailed regulations. These cases often raise doubts for both employers and employees.
One such case is when the employer is obliged, under separate provisions, to cover the employee with insurance guaranteeing a cash benefit for the period of leave. In such circumstances, as a rule, the employee is not entitled to holiday pay or a leave equivalent under the Labour Code.
However, if the cash benefit for the period of leave from the insurance is lower than the holiday pay or leave equivalent due under the Labour Code, the employer is obliged to pay the employee the difference between these amounts.
Where the employee is covered by insurance guaranteeing a benefit for the period of leave and that benefit is lower than the leave equivalent, the employer must pay the difference. This ensures the employee receives the full entitlements under labour law
Another special case is when, immediately after the employment ends, the parties conclude another employment contract. In such circumstances they may agree that the leave due to the employee will be used during the new contract. Then there is no obligation to pay the equivalent, because the employee will be able to take the leave in kind.
This option is, however, limited in scope and requires a clear agreement between the parties. It cannot be used when a significant period passes between the end of one contract and the start of the next, because continuity of employment is then lost.
Procedure for paying the leave equivalent:
- Checking the amount of annual leave due
- Determining the period worked in the year the contract ends
- Calculating the proportional amount of the equivalent
- Determining the pay basis for calculating the equivalent
- Paying the equivalent on the wage payment date or within 10 days of the end of the contract (Article 171 § 4–5 of the Labour Code)
- Recording the payment in the relevant HR and payroll records
Another important issue is how the amount of the leave equivalent is calculated. The basis is the pay the employee would have received for the period of leave. Fixed pay components are taken in the amount due in the month in which the right to the equivalent was acquired, and variable components – in the average amount from 3 months (Regulation of 8 January 1997).
When calculating the leave equivalent, the same pay components are taken into account as would be paid to the employee for annual leave. This includes basic salary, fixed allowances and – in their average amount – variable components
The timing of paying the equivalent in relation to other amounts due to the employee also requires attention. From 27 January 2026 the equivalent is, as a rule, paid on the wage payment date (Article 171 § 4 of the Labour Code), that is usually together with the last wage payment and other amounts due on termination of employment.
A sales department employee received a basic salary of PLN 4,000 and a fixed function allowance of PLN 500 per month. When calculating the equivalent for 10 days of unused leave, the basis will be PLN 4,500 per month. It is divided by the leave coefficient – in 2026, 20.92 for a full-time job (§ 19 of the Regulation of 8 January 1997) – which gives an equivalent of about PLN 215.11 for 1 day. The equivalent for 10 days will therefore be about PLN 2,151.
Consequences of missing the deadlines for paying the equivalent
Missing the deadlines for paying the equivalent for unused annual leave may have serious consequences for the employer. These consequences are both financial and legal, and they become more severe the longer the delay lasts.
The basic consequence of late payment of the leave equivalent is the obligation to pay statutory interest for delay. As already mentioned, this interest is charged from the day after the due date and in November 2026 amounts to 9.25 per cent per year.
Interest is absolute and is due to the employee regardless of the reasons for the delay. It does not matter whether the delay results from the employer's financial problems, organisational errors or other circumstances. The employer bears full responsibility for paying all amounts due to employees on time.
Interest for late payment of the leave equivalent is charged for each day of delay, including the day of payment. This means that the longer the employer delays payment, the higher the additional costs
Besides statutory interest, the employer may also face other financial consequences. The employee has the right to pursue claims in court, which involves additional costs of proceedings, including legal representation costs and court fees.
If the employee wins the case, the employer may also be ordered to cover the employee's costs of proceedings. This significantly increases the total cost of late payment of the leave equivalent.
Potential consequences of late payment:
- Statutory interest for delay accruing daily
- Court costs in the event of a dispute
- The employee's legal representation costs
- A possible fine for an offence (Article 282 § 1 point 1 of the Labour Code) after an inspection by PIP (National Labour Inspectorate)
- Damage to the employer's reputation as a reliable partner
PIP may also start an inspection following reports of late payment of amounts due to employees. Such an inspection may result in an order to pay the benefit due (Article 11 point 7 of the National Labour Inspectorate Act) and in the employer being fined. Settling the leave equivalent and final salary when an employee leaves is something we can take over as part of our payroll outsourcing.
Failing to pay wages or another benefit due to an employee on the set date is punishable by a fine – from 8 July 2026, from PLN 2,000 to PLN 60,000 (Article 282 § 1 point 1 of the Labour Code). A labour inspector may impose a fine by penalty notice (up to PLN 5,000) or file a request for punishment with the court
Long delays in paying the leave equivalent may also cost the employer the trust of other employees and job candidates. With wide access to information, opinions about an unreliable employer spread quickly, which can make recruitment harder.
A medium-sized manufacturing company with 50 employees delays paying the equivalent in several cases a year. The interest itself is usually not high (on PLN 3,000 for 90 days – about PLN 68), but on top of it come court costs and the risk of a fine after a PIP inspection.
It is also worth remembering that claims for payment of the leave equivalent become time-barred only after three years from the day they became due. This means the employee has a relatively long time to pursue their rights, and throughout this period the employer remains exposed to potential claims with accruing interest.
