Wage compensation

What it means

Wage compensation is due for time not worked where the reason is recognised: leave, a public holiday, the first ten days of sick leave, obstacles on the employer’s side, a doctor’s visit.

It is calculated from average earnings for the previous quarter, not from base pay. So the amount changes every quarter even under an unchanged contract.

For the first days of incapacity it is, strictly, sick pay under a separate act rather than wage compensation under the Labour Code. It is calculated differently, from the daily assessment base, and unlike compensation for holidays or public holidays it carries no contributions. In the payroll software it must therefore not end up in the same category.

How it works in practice

If the employer cannot assign work, that is an obstacle on its side and compensation is due at no less than the statutory level. The rule proved decisive during operational shutdowns.

In payroll the type of obstacle must be classified correctly: it drives the percentage and whether the company or the Social Insurance Agency pays.

When a public holiday falls on a working day, an employee on a monthly wage receives no compensation, because their pay for the month is simply not reduced. Compensation concerns hourly and piece-rate pay. In teams where both pay methods are mixed we therefore check that the payroll software tells them apart and does not pay the holiday twice or not at all.

What to watch out for

An error in average earnings feeds into every payment at once: holiday pay, premiums and severance. It is then corrected across the whole period, not for one month.

Not every personal obstacle gives a right to compensation. Some only entitle the employee to unpaid time off, and for a doctor’s visit compensation depends on conditions set by law, so the employee should provide a certificate. Compensation paid without a basis is hard to defend in an audit, and the obstacles at work then have to be recalculated retrospectively.