A new Dutch regulation regarding taking time or salary in lieu of a sabbatical break has passed all but unnoticed.

Since 1 January 2001, employees and expatriates have been able to save some of their earnings or time worked to take a sabbatical-style break at a future date in a tax-friendly way.

As an employer, this provides opportunities to set yourself apart from others in the labour market, subject to certain requirements of course.

The new Holiday Time Savings Act gives employees the right to save up to 10 percent of their gross annual salary (in time or money) to take paid leave at a future date.

The timing of the leave must be approved by the employer and the period of leave must not exceed twelve months.

Holiday time saving is only available where the employer has drafted a set of rules to regulate it.

All savings are expressed in terms of money, so time also has to be given a cash value.

It is most likely that the daily rate will be based on the employee's pay at the time the savings are made.

However, the value will ultimately be calculated using the value of each day at the time leave is taken.

For example, someone earning the equivalent of NLG 150 a day who saves 80 days of leave may be earning NLG 220 a day when he chooses to take the leave (or trade it for cash) five years later.

Taking the pay increases in the intervening years and an interest payment into account, the balance remaining is the equivalent of 67 days paid leave.

Interestingly, the introduction of holiday time saving has passed all but unnoticed.

Any public responses by employers or employer federations were to the effect that it would not have any major effects in the short term.

Given the tight labour market at the moment, allowing valued employees to save some of their holiday time (and pay) for later has come at just the right time.

Yet only five months since its introduction, the mood is starting to change.

Negative effects of holiday time-saving

Jan van Duren of the Human Resources Consulting Group at PricewaterhouseCoopers, says: "We are constantly being questioned by employers struggling with issues such as: how can you make sure that half of a department doesn't take their sabbatical leave at the same time, and how can you be sure that your best people will come back after their sabbatical?

"But the question that caused most concern was: how can you minimise the negative effects of holiday time saving, or at least spread them out over time?"

The potential downside is easy to see. If an employee or an expatriate saves up the equivalent of fifteen days' holiday every year by setting aside holiday and pay, he will have saved a glut of 125 days by 2009, or enough holiday to take six months off.

The reason that it is possible to amass such a cornucopia of holiday is partly due to the extension of the validity of accrued holiday entitlement.

Since the introduction of holiday time savings, accrued entitlement is now valid for a whole five years compared to only two previously. All this presents a serious risk of capacity problems, especially in small and mid-size businesses.

According to Van Duren, it is crucial to limit the length of leave that can be taken as well as the number of staff that can be off at the same time.

There should also be a rule that different types of leave cannot be taken consecutively, i.e. there should be a definite gap between regular holiday and sabbatical leave.

Managers can also set down the minimum number of staff that have to be present in a department at any one time.

One way of doing this is to assign each department a leave budget; once the budget is used up, the whole department will just have to wait. However, this method can cause friction within the department.

Time-saving rules should depend on company type

According to van Duren, if your company's work is predominantly seasonal, it would be preferable for employees not to take leave during the busiest times.

Make it attractive for staff to take their time off in another period, for example by offering extra time off or a bonus. It is also important that staff are given the opportunity to 'trade' holiday entitlement already earned.

However, van Duren warns against putting these rules in place for all staff.

While the holiday time savings plan should be available to at least three quarters of the workforce, this type of plan is generally used by no more than a third of staff, often highly qualified workers with a double-income household.

By Andrew Kruseman Aretz, human resources consulting, PricewaterhouseCoopers NV