The employer’s main consideration is the payment of wages for the employee's performance of work. Usually, the employer pays a gross monthly wage to the employee, from which the employer deducts payroll tax and contributions. Holiday allowance is usually paid once a year and the employee’s wages are in principle continued during his/her holidays. However, some employers, especially in the case of on-call workers, choose to pay an 'all-inclusive wage’ to the employee. With an all-in wage, the value of holiday allowance and a compensation for accrued holidays is paid monthly in addition to the gross wage. It is then intended that the employee retains the right to take 'time off' in accordance with his/her holidays and that the employee is given the opportunity to actually take these holidays, but that the employee does not receive any wage during the holidays he/she takes: after all, the value of these holidays is factored into the monthly wage.

Regarding the holiday allowance (which usually amounts to 8% of the employee’s wage), the law provides that the parties can (indeed) agree that the employer pays the holiday allowance monthly, provided this is agreed in writing between the employer and the employee. This follows from Section 17(2) of the Minimum Wage and Minimum Holiday Allowance Act. Individual contractual freedom regarding the payment of holiday allowance may be limited in a collective labour agreement, if applicable.

However, there is debate in the literature about the legal validity of the all-in wage regarding the payment of holidays. It follows from Dutch law that the employee retains the right to receive his/her wage during his/her holidays. However, if the employer pays an all-in wage, the employee does not receive any wage payment during the holidays as the value of the accrued holidays is factored into the monthly wage, and thus the wage is deemed to have already been paid.

The question is whether an employer is allowed to pay an all-in wage, where the value of the holidays is already included in the monthly wage and the employee therefore receives no wage during his/her holidays. The basic premise is that employees should be effectively enabled to take their holidays and not be hindered in doing so. Only then can the employee recover from the physical and mental strain of work (the 'recuperation function'). However, with an all-in wage, the employee actually has an incentive not to take any holidays because he/she does not receive any wage during the holidays. Due to this negative incentive, the recuperation function cannot, or may not, be guaranteed.

There is debate as to whether the Court of Justice EU (CJEU) has allowed the all-in wage. The basic premise in literature appears to be that the CJEU does not allow the all-in wage. We agree with this perspective: in our opinion this follows from the CJEU’s Robinson-Steele ruling. Some confusion might have been arisen because of this ruling. This may be due to the recital in which the CJEU addresses the question of whether payments in respect of minimum annual leave, within the meaning of that provision, that have already been made, contrary to Directive 93/104/EG (currently: Directive 2003/88/EG), may be set off against the entitlement to wage payment for a specific period during which the employee actually uses his/her holidays. According to the CJEU, the Directive does not preclude, as a rule, that additional remuneration that has been paid, transparently and comprehensibly, as holiday pay, for work that has already been done, can be set off against the payment that should have been received during holidays. If those requirements are not met, the employer will still have to pay (additional) wages during the holiday. This entails that the employer, in such a case, will effectively be presented with a double sanction for a non-transparent and incomprehensible method of an all-in wage payment. The burden of proof that the all-in wage was communicated in a transparent and comprehensible manner lies with the employer. The CJEU also states in the ruling that member states must take the necessary measures to ensure that practices contrary to the Directive are not maintained. In our opinion, this is also an argument that an all-in wage is not allowed.

Dutch courts do not always seem to follow this line. Many cases show that Dutch courts (still) allow an all-in wage, as long as the 'agreed all-in wage meets the requirements of transparency and comprehensibility’. This was also ruled in a ruling of the Subdistrict Court (Subdistrict Court Midden-Nederland, 15 March 2023, ECLI:NL:RBMNE:2023:1255). It was also ruled that, with respect to the question whether a compensation for night allowance could be included in the all-in wage, the all-in wage is a permissible deviation from a minimum-collective labour agreement, provided that the all-in wage is agreed in favour of the employee (Subdistrict Court Overijssel 20 June 2023, published on 29 September 2023, ECLI:NL:RBOVE:2023:3831).

If an all-in wage is permissible at all, it is established at least with regard to the requirements of transparency and comprehensibility that a relevant provision must be included in the employment contract. Thus, the employment contract must explicitly contain a provision that the value of holidays is paid monthly (with the usual wage). Opinions differ as to whether such arrangement must also be evident from the payslips. Some judges consider that the all-in wage does not need to be evident from the payslips, as long as the all-in wage arrangement is explicitly included in the employment contract, especially if clarity is also provided in the employment contract which part of the monthly wage payment relates to the holidays. However, from other ruling follows that such arrangement must also be evident from the payslips. According to these rulings, an employee must be able to read from his/her payslip which part of the wage concerns the holidays, because the aforementioned recuperation function could otherwise be compromised as it may not be clear to the employee which part of the pay he/she has to reserve for the holidays. This also follows from Section 7:626 of the Dutch Civil Code; employers must provide the wage and the specified amounts on the payslip. In a recent ruling of the Court of Appeal of The Hague (19 September 2023, in Dutch: ECLI:NL:GHDHA:2023:1781), there was a discussion as to whether parties agreed upon an all-in wage (whether holiday allowance was factored into the monthly wage). The employee disputed that this was the case and the court ruled in the employee’s favour. According to the Court of Appeal, the employer had failed to substantiate concretely and factually that it has always been customary and clear that the holiday allowance was factored into the wage, and that this usage meant that the employee would be bound thereto. As a result of the ruling, the employer was required to pay the holiday allowance to the employee retroactively. Although this ruling relates to holiday allowance (and not the payment during holidays), we believe this ruling is also relevant in case of an all-in wage that also includes payment during holidays since the ruling emphasizes that all elements of the all-in wage must be (explicitly) specified by the employer. Subdistrict courts usually also assess whether employees have actually been able to take their holidays in practice. In other words, if the all-in wage had no real (or at least no negative) impact on actual holiday take-up, the recuperation function was (apparently) not compromised. Furthermore, one subdistrict court ruled that, as an additional requirement, the employee cannot suffer ‘financial disadvantage’ from the arrangement. The question of what constitutes financial disadvantage is not answered in the mentioned ruling.

The exact intention of the CJEU is, as mentioned, subject to debate. The question is whether Dutch (subdistrict) courts do not interpret the CJEU’s ruling too broadly. In our opinion, this is the case.

We deem it likely that the Supreme Court or the CJEU will limit allowing such arrangement in the future. For now, however, Dutch courts seem to accept an all-in wage in many cases, as long as it is communicated transparently and comprehensibly enough to employees.

Should employers still want to make use of an all-in wage (and the applicable collective labour agreement does not provide anything on this), it may be advisable – in order to avoid discussions as much as possible – not only including a provision on this in the employment contract, but also making it clear on the payslip which part of the monthly payment refers to the wage, which part refers to the holiday allowance and which part concerns the holidays. The employer must also observe the recuperation function.

Should you have any questions on this subject or wish to be further informed about any developments, please do not hesitate to contact us.