Unused Annual Leave Payout: If Your Company Uses a Fiscal-Year Count Instead of Your Hire Date, It Has to Recalculate When You Leave

Unused Leave Payout: Why the Math Differs by Company

Hire-Date Counting Is the Statutory Default

Article 60 of the Labor Standards Act grants 15 paid days off to any employee who attended at least 80% of working days over one year. After that, one additional day is added every three years, up to a cap of 25 days. For employees with under a year of tenure, or who attended less than 80% of working days in their first year, leave instead accrues one day per full month of perfect attendance, capped at 11 days. This calculation is, in principle, meant to be tracked individually from each employee's actual hire date.

Fiscal-Year Counting Is an Employer Convenience, With Limits

Because employees are hired on different dates throughout the year, tracking leave individually is administratively burdensome, so in practice many companies grant leave to the entire workforce all at once from a fixed fiscal-year start date (usually January 1). The catch is a governing principle: this method cannot leave an employee worse off than the hire-date method would have. If the total leave calculated under the fiscal-year method comes out lower than what the hire-date method would produce, the company must pay out that shortfall as unused-leave compensation when the employee resigns. Conversely, if the fiscal-year method happens to produce more leave than the hire-date method, the company can only claw back that surplus if its work rules explicitly say so.

Employees Under One Year Aren't Covered by the Fiscal-Year Method

A detail that gets missed often: the one-day-per-month leave that accrues for employees with under a year of tenure must still be calculated individually from that employee's own hire date, even at a company that otherwise uses fiscal-year counting. If a new hire's first year of leave is folded directly into the fiscal-year formula, it can come out lower than what actually accrued. If you left the company before using up your first year's leave, this is the piece worth recalculating first.

The Two Methods Must Be Compared at Resignation

When an employee at a fiscal-year company resigns partway through the year, the employer is required to compare total leave calculated by hire date up to the resignation date against leave actually granted and used under the fiscal-year method. If the hire-date total is higher, the difference has to be paid out as additional unused-leave compensation -- skipping this is unpaid wages. If the fiscal-year method had granted more than the hire-date method would have, the excess already used can be deducted during final settlement, but only if the company's work rules provide a basis for that.

Going Through Leave-Encouragement Procedures Can Cancel the Payout

If an employer properly completes the leave-encouragement procedure set out in Article 61 of the Labor Standards Act, its obligation to pay out unused leave disappears. This procedure has two stages: first, six months before the leave period ends, the employer must notify the employee in writing of remaining leave days and ask them to schedule when to use them; if the employee doesn't respond, the employer must then, two months before the period ends, designate specific dates in a second written notice. If either of these two written notices was missing or didn't meet the required form and timing, the entire procedure is invalid, and the employer still owes the unused-leave payout in full. If you never received these notices, that's the first thing worth checking.

Payouts Use Ordinary Wages, and Must Be Claimed Within 3 Years

If leave expired unused with no valid encouragement procedure in place, the employer must calculate the payout using ordinary wages (or average wages). Because this payout is itself a wage, the three-year statute of limitations on wage claims applies. If it's been less than three years since you left, it's worth comparing your pay stubs against your employment contract to check for any unpaid leave settlement. If a shortfall turns up, filing a complaint with the Ministry of Employment and Labor is one way to get it confirmed -- and this obligation applies regardless of whether you left through a recommended resignation or a dismissal.

Different From Overtime Pay and Weekly Holiday Pay

It's a common mix-up to assume annual-leave payout is calculated the same way as overtime pay or weekly holiday pay, but all three use different formulas. Leave payout multiplies ordinary (or average) wages by unused days; overtime pay is 1.5 times the hourly wage; and weekly holiday pay follows its own formula based on scheduled working hours. If your pay stub lumps all three together under a vague "other allowances" line, you can ask for them to be broken out and calculated separately.

Summary

① Check whether your company counts leave by hire date or fiscal year. ② If it's fiscal year, recalculate by hire date at resignation and compare for any shortfall. ③ First-year leave for employees under one year of tenure must be calculated individually regardless of the fiscal-year method. ④ If you never received the two written leave-encouragement notices (6 months and 2 months before expiry), you likely still have a right to payout. ⑤ If a shortfall is found, act within the three-year statute of limitations, and file with the Ministry of Employment and Labor if needed. The exact calculation can vary by company work rules and employment contract, so confirm the precise amount with your HR department or through Ministry of Employment and Labor consultation.