Compensation for unused paid annual leave — calculation and entitlement (2026)

Legal framework (Art. 224 Labour Code)

Pursuant to Art. 224, para. 1 of the Bulgarian Labour Code: „Upon termination of the employment relationship, the worker or employee shall be entitled to monetary compensation for the unused paid annual leave, the right to which has not been extinguished by prescription.“ This provision is fundamental for the regime of monetary compensation upon termination and reflects the right to paid annual leave as a fundamental social right, recognised both by the Constitution of the Republic of Bulgaria and by Art. 31 of the Charter of Fundamental Rights of the European Union.

It is essential to emphasise that monetary compensation for unused leave is payable ONLY upon termination of the employment relationship — regardless of the grounds for termination. While the employment relationship is in force, converting the right to leave into monetary compensation is expressly prohibited by Art. 178 of the Labour Code. Replacing unused leave with a financial payment during employment is inadmissible because it contradicts the very purpose of leave — rest and restoration of the employee's working capacity.

This prohibition is fully consistent with the case law of the Court of Justice of the European Union (CJEU) on the application of Directive 2003/88/EC concerning certain aspects of the organisation of working time, according to which paid annual leave may not be replaced by a financial allowance, except upon termination of the employment relationship.

Minimum paid annual leave

The duration of paid annual leave is regulated by Art. 155 of the Labour Code. Pursuant to Art. 155, para. 4, the minimum duration of the basic paid annual leave is 20 working days. This minimum cannot be reduced by individual employment contract, collective bargaining agreement, or the employer's internal rules.

In addition to the basic leave, the Labour Code provides for several types of additional leave under Art. 156:

• Additional leave for work under specific conditions and risks to life and health — not less than 5 working days per year, for workers and employees performing work under specific conditions determined by secondary legislation;
• Additional leave for unregulated working hours — not less than 5 working days per year, for employees whose working time has been established as unregulated under Art. 139a of the Labour Code.

For certain special categories of workers, increased amounts of basic leave are provided. For example, minor workers are entitled to paid annual leave of not less than 26 working days, including for the calendar year in which they turn 18.

Both unused basic and additional leave are subject to compensation upon termination of the employment relationship, to the extent that the right to them has not been extinguished by prescription.

Calculation formula (Art. 224, para. 2 Labour Code)

The calculation base of the compensation under Art. 224 of the Labour Code is set out in para. 2 of the same article, which refers to Art. 177 of the Labour Code on the method of determining gross labour remuneration. The formula is as follows:

Compensation = (GLR ÷ WD) × UD

where:

• GLR — the gross labour remuneration accrued for the month preceding the month of termination, in which the worker or employee worked at least 10 working days;
• WD — the number of working days in that reference month;
• UD — the number of unused paid annual leave days for which the right has not been extinguished by prescription.

If during the month preceding termination the employee has not worked at least 10 working days, under Art. 177, para. 2 of the Labour Code, the reference month shall be the last preceding month in which at least 10 working days were worked. If the worker or employee has never worked a month with 10 or more working days during the employment relationship, under Art. 177, para. 3, the calculation base shall be the basic and additional remuneration of a permanent nature agreed in the employment contract.

The calculation base includes not only the basic remuneration, but also additional remuneration of a permanent nature — such as the remuneration for acquired length of service and professional experience (seniority bonus), as well as other additional payments determined as permanent in the employment contract or in a normative act. One-off bonuses, awards and non-permanent payments are not included.

Prescription period (Art. 176a Labour Code)

A special provision on the prescription period for the right to paid annual leave is set out in Art. 176a of the Labour Code. According to this provision, the right to use paid annual leave is extinguished upon the expiry of two years from the end of the year in which the right arose. This means that the right to leave for 2024, which arose in 2024, is extinguished on 31 December 2026 if not exercised within this period.

When leave is deferred under Art. 176 of the Labour Code — due to illness, use of another leave, or for important production reasons — the two-year period starts from the end of the year in which the obstacle to using leave ceased. After the expiry of this period, the right is finally extinguished and is not subject to monetary compensation upon termination.

IMPORTANT: The case law of the Court of Justice of the European Union, however, significantly limits the application of automatic prescription. In a series of landmark decisions — Schultz-Hoff (C-350/06), Max-Planck-Gesellschaft (C-684/16), and Bollacke (C-118/13) — the CJEU has held that the employer is obliged to actively inform the worker of the right to leave and the consequences of not exercising it. If the employer has failed to comply with this obligation, the right to paid annual leave (and accordingly the right to monetary compensation under Art. 224) cannot be automatically extinguished upon expiry of the prescription period. This European jurisprudence has direct effect in Bulgaria and is taken into account by the courts in employment disputes.

Practical calculation example

For greater clarity, let us consider a specific numerical example for calculating the compensation under Art. 224 of the Labour Code in the context of 2026:

• Termination date: 15 March 2026
• Gross labour remuneration for February 2026: EUR 1,534 (equivalent to BGN 3,000)
• Working days in February 2026: 20
• Number of unused days: 14 working days (8 days of unused leave from 2025 + 6 days pro-rata for 2026)

The calculation proceeds in two steps:

1. Daily base: EUR 1,534 ÷ 20 working days = EUR 76.70 per day;
2. Total compensation (gross): EUR 76.70 × 14 days = EUR 1,074 (gross).

From this amount, the employer withholds the employee's social security contributions (for the funds of the state social insurance, health insurance, and supplementary mandatory pension insurance) and personal income tax at the rate of 10% under the Personal Income Taxes Act (PITA). The net amount is paid to the worker or employee by the end of the month following the month of termination of the employment relationship (Art. 228, para. 3 Labour Code), unless a different period is agreed in a collective bargaining agreement.

Tax treatment

Compensation for unused paid annual leave under Art. 224 of the Labour Code is treated as income from employment within the meaning of Art. 24 of the Personal Income Taxes Act (PITA). This means it is subject to income tax and social security contributions on the same basis as regular labour remuneration. In summary:

There is an important difference with the compensation under Art. 222, para. 1 of the Labour Code (compensation upon termination due to unemployment), which is NOT subject to social security contributions, as it is not considered income from employment within the meaning of the Social Insurance Code. However, the compensation under Art. 224 retains its character as labour remuneration and is therefore subject to full social and health insurance contributions.

The employer is obliged to withhold and remit the social security contributions and PIT due within the applicable deadlines, and to include the amounts in the monthly declarations (Form 1 and Form 6) filed with the National Revenue Agency.

Payment deadline (Art. 228, para. 3 Labour Code)

Pursuant to Art. 228, para. 3 of the Labour Code, monetary compensation upon termination of the employment relationship, including the compensation under Art. 224, shall be paid no later than the last day of the month following the month in which the relationship was terminated. If termination occurs on 15 March 2026, the compensation must be paid at the latest by 30 April 2026.

Under a collective bargaining agreement, a longer deadline may be agreed, but not more than two months from termination. In the event of late payment, the employer owes statutory default interest on the unpaid compensation, calculated from the day following the deadline to the day of actual payment.

The employer's inability to pay on time does not exempt from liability. In the case of prolonged delay, the worker or employee has legal remedies — including claims before the competent district court, as well as the possibility of initiating enforcement proceedings once an enforcement title is available.

Special situations

The legal regime of compensation under Art. 224 of the Labour Code provides for or accommodates special rules in a number of specific situations:

1. Death of the worker or employee — Upon the worker's death, the right to monetary compensation for unused paid annual leave passes to the heirs. This position was established by the CJEU in the decisions Bollacke (C-118/13) and Bauer (C-569/16), according to which the right to paid annual leave and the resulting monetary compensation are property rights that are not extinguished upon the worker's death, but pass into the estate of their heirs.
2. Illness during leave — Pursuant to Art. 175 of the Labour Code, when during the use of paid annual leave the worker is granted another type of leave (e.g. due to temporary incapacity for work), the use of paid annual leave is interrupted at the worker's request, and the remainder is used later by agreement with the employer. In this way, sick days are not „consumed“ at the expense of the basic leave.
3. Maternity and child-raising leave — Pursuant to Art. 163 et seq. of the Labour Code, the time during which the mother is on pregnancy, childbirth, and child-raising leave is recognised as length of service, including for the purposes of accruing entitlement to paid annual leave. The prescription period for using the leave does not run until the end of the year in which the obstacle to using the leave ceased, in accordance with Art. 176a.
4. Disciplinary dismissal — The right to compensation under Art. 224 is retained regardless of the grounds for termination of the employment relationship, including in cases of disciplinary dismissal under Art. 188 et seq. of the Labour Code. The Labour Code does not provide for forfeiture of the right to compensation for unused leave as a sanction for disciplinary misconduct.

Employer's obligation (Art. 173 Labour Code)

The Labour Code places significant responsibility on the employer to ensure the actual use of paid annual leave. Pursuant to Art. 173, para. 1, paid annual leave is used on the basis of a schedule approved by the employer, in which all workers and employees are included. The schedule is approved by the end of the preceding calendar year, following written notice to the workers.

Art. 173, para. 4 of the Labour Code introduces a clear obligation on the employer to ensure that paid annual leave is used by each worker or employee by the end of the respective calendar year. If the leave has not been used by 5 June of the following calendar year at the worker's initiative, para. 5 gives the employer the right to unilaterally determine the time for using the accumulated unused leave, without the worker's consent.

The CJEU case law in Max-Planck (C-684/16) establishes the understanding that not taking leave is not only a „risk“ for the worker, but also an obligation on the employer. The employer cannot take advantage of the worker's inactivity if the employer itself has not provided the conditions and has not properly informed the worker of the right and the consequences of not exercising it.

In case of violations of the provisions on paid annual leave, the employer may be sanctioned by the control bodies of the Executive Agency „General Labour Inspectorate“ under Art. 414 of the Labour Code with a property sanction in the amount set by law, for each individual violation. See also our publication on Bulgarian employment law for a full overview of employer obligations.

Frequently asked questions