Termination of Employment and the Right to Compensation for Unused Annual Leave from the Previous Year

One of the common dilemmas in practice concerns the employee’s right to compensation for unused annual leave from the previous year in cases where employment is terminated during the first half of the current year.

In this regard, this article analyzes the position taken in the opinion of the Ministry of Labor, Employment, Veterans and Social Affairs (“the Ministry”) No. 003-00-870/2025-13/400-001-002-011-024 dated August 6, 2025 (“the Opinion”).

Legal Provisions

An employee cannot waive the right to annual leave, nor can this right be denied or replaced with monetary compensation, except in the case of employment termination.

Annual leave is used either in full at once or in two or more parts. If the employee uses the leave in parts, the first part must be at least two consecutive working weeks during the calendar year, while the remainder must be used by June 30 of the following year at the latest.

In the event of termination of employment, the employer is obligated to pay the employee monetary compensation in lieu of any unused annual leave, in proportion to the number of unused leave days, calculated based on the employee’s average salary over the previous 12 months.

Factual Background

The employee’s employment was terminated on June 26, 2025.

At the time of termination, the employee had 21 unused working days of annual leave from 2024.

Does this employee have the right to compensation for the entire remaining portion of annual leave from 2024 due to termination of employment?

Position of the Ministry

According to the Ministry’s interpretation, a former employee whose employment ends in late June of the current year, and who by the date of termination has not used the remaining portion of annual leave from the previous year (amounting to 21 days), is entitled to compensation for unused annual leave only for the number of days that could have been used by June 30 of the current year, had the employment not been terminated.

In this particular case, this means the following in practice:

• The employee had 21 days of unused annual leave from 2024, and the deadline for using this leave is June 30, 2025.
• Their employment ends on June 26, 2025.
• Between the date of termination and the end of the deadline for using the leave (June 26 to June 30), there are only 4 working days.
• Accordingly, the employee is entitled to compensation for 4 unused working days of annual leave from 2024.
• Therefore, if the employment ends before June 30, the employee cannot use the full remaining leave and thus cannot claim compensation for the full amount.

Conclusion

This interpretation is in line with the purpose of the provisions of the Labor Law, which primarily sees the right to annual leave as a right to rest, not as a monetary benefit.

Borinka Dobrnjac, Senior Associate
borinka.dobrnjac@prlegal.rs; legal@prlegal.rs;