A Complete Guide to Annual Leave Accrual: Differences Between Hire Date and Fiscal Year Standards

One of the things employees look forward to most is annual leave. However, calculating exactly how many days of leave you have and when they accrue can often feel complicated. Annual leave accrual standards are generally divided into two types, and understanding them is essential to avoid disadvantages. First, quickly check if you fall into any of the following categories:

• Are you a new employee with less than one year of service?
• Does your company grant annual leave collectively based on January 1st?
• Do you need to settle your remaining annual leave allowance upon resignation?

If you find it difficult to answer these questions clearly, please read this detailed guide on annual leave accrual standards to the end. Annual leave is a right guaranteed under Article 60 of the Labor Standards Act, and legal standards take precedence over company regulations.

1. The Basic Principle of Annual Paid Leave: Article 60 of the Labor Standards Act

Annual leave is paid leave granted to employees who have attended work for at least 80% of the year. For those who have attended less than 80% of the year or have been employed for less than one year, one day of paid leave is granted for every month of perfect attendance. The key factors are the '80% attendance rate' and the 'continuous service period.' The continuous service period refers to the time from the date of hire to the date of resignation, and the attendance rate is calculated based on the prescribed working days.

A common misconception is how absences or tardiness affect leave accrual. Since annual leave is legally designed to guarantee an employee's right to rest, periods of leave for justifiable reasons or suspension of work due to work-related injuries are considered as days attended. This is called 'deemed attendance.' In other words, the intent is not to penalize employees for periods they could not work due to circumstances beyond their control. When calculating the actual attendance rate against prescribed working days, these deemed attendance periods may be excluded from both the numerator and denominator, or just the denominator; while the calculation can be complex, the principle is to calculate it in a way that is favorable to the employee. Repeated unauthorized absences without justifiable reasons can negatively affect the attendance rate, so maintaining good attendance is important. Furthermore, the prescribed working days, which form the basis for leave calculation, refer to days where there is an obligation to work as specified in the employment contract or rules of employment, excluding holidays and days off. To use annual leave, employees need to clearly understand these legal grounds and regularly check their attendance records to verify that they meet the requirements for leave accrual.

2. Comparison: Hire Date Basis vs. Fiscal Year Basis

Methods for calculating annual leave are generally divided into the 'Hire Date Basis' and the 'Fiscal Year Basis' (resetting on January 1st regardless of the hire date). Each method has distinct pros and cons and is determined by the company's rules of employment. The Hire Date Basis calculates leave in one-year units starting from the individual's date of hire. For example, if you were hired on May 1st, one unit runs until April 30th of the following year. Conversely, the Fiscal Year Basis resets all employees' leave on January 1st. In the first year, leave is granted proportionally based on the period from the hire date to December 31st, and a full year's worth of leave is granted on January 1st of the following year.

When using the Fiscal Year Basis, one must be careful at the time of resignation. There is legal precedent stating that if the number of leave days is lower than what would have been calculated on a Hire Date Basis, the settlement must be made in a way that is more favorable to the employee. Therefore, even if a company uses the Fiscal Year Basis, both methods must be compared upon resignation. In particular, when a new employee with less than one year of service is granted leave under the Fiscal Year Basis, it must be reviewed to see if it is more or less favorable than the Hire Date Basis; this is an important fact that both HR managers and employees must understand to protect their rights. Companies that adopt the Fiscal Year Basis often face more labor-management conflicts regarding remaining leave compensation upon resignation. To prevent this, employees should calculate and compare the number of leave days accrued based on their hire date versus the leave granted under the Fiscal Year Basis. If the company's application of the Fiscal Year Basis results in a disadvantage to the employee, there is a legal basis for the employee to demand the application of the Hire Date Basis. In practice, when calculating unused leave allowance upon resignation, the Supreme Court has established that if the Fiscal Year Basis provided more leave, that standard is maintained, but if the opposite is true, the method more favorable to the employee must be chosen for settlement. Therefore, even in workplaces that adopt the Fiscal Year Basis, one must re-calculate leave based on the individual hire date upon resignation to check for any unpaid allowances.

3. Annual Leave for New Employees with Less Than One Year of Service

Employees with less than one year of service accrue one day of paid leave for every month of perfect attendance. This means up to 11 days of leave can be accrued before the first year is completed. In the past, if these 11 days were used, they were deducted from the 15 days of leave granted after one year; however, due to a legal amendment, leave accrued during the first year and the 15 days granted after one year of full attendance are now operated separately. In other words, even if you use all 11 days during the first year, you still receive the 15 days of leave upon completing one year of service. This is an important change to guarantee the right to rest for new employees. However, note that leave accrued during the first year expires one year from the date of accrual, so be careful not to miss the deadline. New employees should mark their leave accrual dates on a calendar and plan to take appropriate rest during their adjustment period. The leave accrued during the first year has a one-year statute of limitations from the date of accrual, which is separate from the 15 days granted after one year of service. Therefore, when keeping a leave management ledger, it is best to manage leave accrued during the first year separately from leave accrued after one year of service to avoid confusion. Additionally, whether an employee with less than one year of service is subject to the 'Annual Leave Usage Promotion System' may depend on the company's rules of employment, but generally, since work adjustment is the priority in the early stages, creating an atmosphere where leave can be used freely is also important for corporate HR management. New employees should understand these legal rights to enjoy a smart work life, prioritizing appropriate rest to increase work efficiency rather than overworking from the start.

4. Annual Leave Usage Promotion System and Statute of Limitations

Annual leave can be used for one year from the date of accrual. Unused leave is converted into an allowance, known as the 'Unused Annual Paid Leave Allowance.' Companies can encourage employees to use their leave through the 'Annual Leave Usage Promotion System.' If a company follows the legal procedures and notifies the employee in writing, but the employee still does not use the leave, the company is exempt from the obligation to pay the allowance. If the promotion procedure is not followed or the written notice is missing, the company must pay the allowance for unused leave. Many workplaces simplify this procedure or misunderstand it, leading to disputes. It is necessary to develop the habit of marking your leave expiration dates on a calendar. Annual leave promotion is not just a verbal notice; it must include specific written procedures, such as a request to submit a usage plan within a certain period, to be effective. Written promotion must be conducted for the first time 6 months before the leave expires (if the accrual period is 1 year), and if the leave is still not used, a second promotion must be conducted 2 months before expiration. In this process, if the employee does not submit a specific leave usage plan, the company can designate the leave period. If the company misses any of these legal procedures or only provides verbal notice instead of written notice, the effectiveness of the leave usage promotion is not recognized. From the employee's perspective, when receiving a leave usage promotion notice from the company, you should double-check your remaining leave days and expiration dates, and if necessary, submit a leave usage plan to exercise your rights. Since annual leave promotion is a system that encourages rest rather than restricting employee rights, you should make an effort to create a healthy work environment for yourself by utilizing it.

5. Annual Leave Settlement and Allowance Calculation Method

Annual leave allowance is calculated based on ordinary wages. The hourly wage is calculated based on daily working hours, and this is multiplied by 8 hours to determine the daily ordinary wage. For example, for an employee with an hourly wage of 10,000 KRW, the daily ordinary wage is 80,000 KRW. If there are 5 days of unused leave, you will receive 400,000 KRW in leave allowance. Upon resignation, all unused leave must be settled as an allowance. A point to note here is whether the requirements for leave accrual have been met. If the resignation date is before the leave accrual date (the day one year from the hire date), that leave does not accrue. Therefore, considering the leave accrual requirements when deciding your resignation date can be economically advantageous. When calculating ordinary wages, you must check whether allowances paid regularly and uniformly are included, which can be accurately identified through your pay stub. For example, fixed meal allowances or position allowances are often included in the scope of ordinary wages, so it is important to clearly define the scope of ordinary wages to verify that your leave allowance was calculated correctly. Furthermore, since leave allowance can affect severance pay calculations, the final leave settlement before retirement is a very important procedure. Before resigning, employees should check their remaining leave days and the expected allowance payment amount with the HR team in advance to ensure no items are omitted from the severance pay settlement. Since annual leave allowance is considered wages under the Labor Standards Act, if it is not paid within 14 days after resignation, it constitutes unpaid wages, and you have the strong legal right to file a petition with the Ministry of Employment and Labor.

6. Checklists and Precautions by Situation

Here are the final points to check to properly utilize the annual leave system. First, check your company's rules of employment. It will specify whether the Hire Date Basis or Fiscal Year Basis is used. Second, accurately identify your hire date and length of service. Third, if you have unused leave, check the statute of limitations and make a vacation plan. When applying for leave, consider the company's work situation, but there is no reason to be denied if there is a justifiable reason. Also, since annual leave is an employee's right, it is illegal for a company to force you to use it unilaterally or to penalize you for using it. If you are treated unfairly regarding annual leave, it is recommended to seek specific advice through the Ministry of Employment and Labor counseling center. Knowing your rights accurately and enjoying rest confidently is the beginning of a smart work life. Finally, since remaining leave after usage must be paid as an allowance at the end of the year, it is best to keep a record. In particular, when applying for leave, using means that leave a trail, such as messengers or emails, is the best way to prevent future disputes regarding whether leave was used. Also, even if there is an atmosphere within the company that restricts the use of leave, the Labor Standards Act grants the right to designate the timing of leave to the employee, so it is necessary to work together to create a culture where leave can be used freely within the scope of not hindering work. Recognize that the annual leave system is a mechanism not just for resting, but for increasing work productivity and achieving better results through recharging, and please utilize it actively.