Ⅱ. Granting Annual Paid Leave

“Annual paid leave” in the current Labor Standards Act refers to paid vacations that employees receive in return for work. It was originally designed to provide physical and mental rest to employees tired from hard work, to maintain the continuity of the labor force, and to secure a balance in people’s lives. However, human resource(HR) managers are often confused about how to best allow for annual leave and continually ask questions on this subject. According to the Labor Standards Act(LSA), annual leave is to be calculated and provided based on the individual employee’s start date. However, for companies with many employees, individual management of annual leave is not easy to calculate due to the different starting dates, and it is also not easy to take advantage of related laws promoting its use.
Although the rules of employment and collective agreements may stipulate that annual leave will follow the LSA, many companies, for the sake of convenient labor management, provide uniformity in annual leave for employees based on a ‘calendar year’ period, and then recalculate the annual leave based on individual start dates at the time when employment ends. The number of annual leave days can differ in accordance to the various annual leave-provision methods, and individual companies follow different types depending on their HR policy.
In this chapter, I would like to review, in detail, the various ways in which annual leave can be calculated:

1. Legal Basis for Calculating Annual Leave

(1) The Labor Standards Act – Start date
Article 60 of the LSA stipulates that annual leave shall be calculated on the basis of the start date of each individual employee.


Article 60 (Annual Paid Leave)
① An employer shall grant 15 days’ paid leave to a worker who has registered not less than 80 percent of scheduled attendance in a one year period.
② An employer shall provide one day’s paid leave per month to a worker whose consecutive service period is shorter than one year or whose attendance is less than 80 percent, if the worker has worked without absence for a full month.
③ - This is valid six months after this deletion.
④ After the first year of service, an employer shall provide one day’s paid leave for each two years of consecutive service in addition to the leave prescribed in paragraph (1) to a worker who has worked consecutively for 3 years or more. In this case, the total number of leave days including the additional leave shall not exceed 25.


(2) Government guidelines – Calendar year
Government guidelines allow for the management of annual leave based on a calendar year, with the detailed method as follows:
The period for calculation of the attendance rate in order to calculate annual paid leave under Article 60 of the Labor Standards Act shall follow the individual employee’s annual service period in principle, but for the sake of efficient labor management, the calculation period may follow a calendar year period(Jan. 1 ~ Dec. 31) in accordance with the rules of employment and/or the collective agreement where applicable. To avoid disadvantaging new employees when calculating by calendar year, in the following year the paid leave shall be calculated in proportion to the start date of the first year for those who have worked for less than one year, after which the company can then provide annual leave on a calendar year basis. Provided, if the total number of annual leave days calculated by calendar year is less than the number of annual leave days calculated by actual start date, the company shall provide the lesser number of additional annual leave days.

2. Rules of Employment or Collective Agreement (sample)

Annual leave stipulated in the rules of employment is usually provided as follows:

(1)Where annual leave is calculated by the individual employee’s start date

Article 00 (Annual Paid Leave)
① Each employee shall be granted 15 days for a minimum of 80% attendance during the previous one (1) full year;
② With respect to an employee who has worked for less than one year or an employee who has an attendance rate of less than 80% in one year, the company shall allow one day of paid leave for perfect attendance for one month; and
③ Each employee who has been employed for 3 years or longer shall be allowed one additional day for every two years exceeding the first one year of continuous employment in addition to the days of leave mentioned in Item a. above. However, the total paid leave including the additional days shall not be more than 25 days.


(2) Where annual leave is managed by calendar year

Rules of Employment: Article 00 Annual Leave
Note - Subparagraphs ①, ②, and ③, have the same content as the above ROE.
④ The calculation period for annual paid leave shall start January 1 of each year and finish on December 31 of that same year.
⑤ As for an employee who started work in the middle of year, the company shall allow on January 1 of the next year, the number of annual leave days calculated in proportion to the employment period of the first year, and beginning the following year, annual leave will be adjusted and provided on a calendar year basis.
⑥ At the end of employment, if the number of annual leave days calculated by calendar year is less or more than the number of annual leave days calculated by the individual’s start date, the company will provide to the related employee an annual paid leave allowance for the correct number of annual leave days recalculated by his/her joining date.


(3) Where annual leave is managed by calendar year, and granted in advance and later recalculated as of the resigning date

rules of employment: Article XX (Annual Leave)
Note - Subparagraphs ①, ②, and ③, have the same content as the above ROE.
④ The calculation period for annual paid leave shall start January 1st of each year and finish on December 31st of that same year.
⑤ As for an employee who started work in the middle of year, the company shall provide one monthly paid leave each month until the first day of the following year in addition to monthly leave days of the above paragraph (2). On January 1st of the next year, the company provides 15 days of annual paid leave in advance.
⑥ At the end of the term of employment (or when resigning), the number of annual leave days that occurs on January 1st of the year in which the employee resigns will be adjusted and settled in proportion to the date of resignation for the period from January 1 to the resigning date.


3. Methods for Calculating Annual Leave

(1) Methods available (Employees hired before June 2017)

The details for granting annual leave, as stipulated in the Labor Standards Act or the rules of employment, are generally similar, but the actual calculation for that leave varies greatly by company. Three types are shown(A, B, and C), each of which may be used by companies.

(2) Methods available (Employees hired after June 2017)

Since the guaranteed paid leave for employees working less than two years is insufficient(15 days granted for the entire two-year period), Article 60 paragraph(3) was deleted in an amendment of the LSA to provide additional paid leave days. It now guarantees 11 annual paid leave days for the first year for employees working less than two years. Thus, a total of 26 paid days are granted over that two-year period: 11 days in the first year and 15 days in the second. Therefore, in calculation of annual leave by calendar year, an additional 11 days shall be added, to maintain the annual management system.






(3) Advantages & disadvantages of each method

1) Type A (based on employee’s start date):
The advantage of this method is that annual leave can be accurately calculated in accordance with the Labor Standards Act.
However, the disadvantage is that: ① it requires a lot of time and effort in that the company needs to calculate each individual employee’s annual leave separately; ② it is difficult to take measures to promote the use of collective annual leave; and ③, employees who intend to leave may “game the system” to find the best time for resignation to maximize their annual leave days.

2) Type B (start date + calendar year)
This method is a way of providing annual leave based on calculating 15 days in proportion to the working period of the first year, on January 1 of the following year, and then to deem January 1 of the following year as the start date for calculating annual leave for that year. When employment comes to an end, the number of annual leave days calculated based on calendar year is compared with the number of annual leave days calculated by the start date. If the number of annual leave days based on calendar year is more than the number calculated by start date, it is preferable to stipulate such a reduction of annual leave in the rules of employment.
The advantage of Type B is that a company can easily manage annual leave, effectively use the method to promote its collective use, and be able to calculate annual leave very accurately while still adhering to the Labor Standards Act.
The disadvantage of Type B is that the company needs more time to recalculate individual annual leave. As well, employees may seek to “game the system” and select a finishing date which allows for more annual leave days.

3) Type C (prior payment + prorated)
This method provides monthly leave for each attendance month for the first year of employment, and then allows 15 days of annual leave in advance on January 1 of the following year, which is then continuously granted in advance based upon the calendar year. For the month when employment is ended, the annual leave will be adjusted up to the last working day on a prorated basis.
The advantages of Type C are that: ① the company can effectively use the measure to promote the use of collective annual leave; ② the company can adjust annual leave easily as it is calculated on a prorated basis; ③ the method can be seen as beneficial in that the employees receive their annual leave ahead of its actual occurrence; and ④ that an employee will not derive any preference for a finishing date because the annual leave is based upon the actual service period calculated on a prorated basis.
Type C’s disadvantage is that the company will always grant more annual leave than what would be provided by the start-date based calculation.

(4) Review of annual leave calculation methods

Companies generally use Type B or C, which are all calendar year-based, when managing their annual leave. Type B(start date + calendar year) takes a recalculation procedure by matching annual leave calculated according to a calendar year with annual leave based on the employee’s start date.
Accordingly, in my opinion, the most suitable is Type C(prior payment + prorated). This type provides monthly leave for each attendance month for the first year of employment, then allows for 15 days of advance annual leave the following year, and in the month when employment is ended, allows for an adjusted annual leave prorated according to the last working day. In particular, Type C can be the most desirable method because it takes full advantage of the convenient calculation of annual leave as well as the benefits of calendar year-based management.

4. Conclusion

Annual leave is designed to provide an opportunity for exhausted employees to recharge through the provision of a paid vacation; this should not be considered an expense, but rather an investment in securing a constant workforce. Employers should also consider some basic principles when applying a method for calculating annual leave. Firstly, the employee should be able to understand and anticipate his or her annual leave and the available number of days that can be used in the near future. Secondly, the company should provide for collective annual leave so it can easily manage the annual leave for all employees and also promote its use. Thirdly, when employment is terminated, the company can easily calculate the annual leave and the employee has no reason to consider the date of termination in the expectation of additional annual leave. That is to say, the final annual leave can be easily adjusted based on termination date.