Twenty working days. That is the minimum annual vacation every employee in Latvia is entitled to -- four calendar weeks, guaranteed by the Labour Law regardless of contract type, salary level, or industry. What most employees do not scrutinize (and what occasionally trips up employers) is how the pay for those twenty days is calculated. It is not simply "keep paying the monthly salary." The math uses average daily earnings, and the result can differ -- sometimes significantly -- from what either party expects.

The Calculation Method

Vacation pay in Latvia follows a specific formula mandated by Cabinet Regulation No. 361:

Vacation pay = Average daily earnings x Number of vacation days

Average Daily Earnings

The average is calculated from the last 6 calendar months before the month in which the vacation begins. The calculation divides total earnings by the number of working days in that period.

What counts as "earnings":

Base salary
Overtime pay
Bonuses and premiums (if regular)
Shift supplements and night work pay

What is excluded:

One-time bonuses not tied to regular work
Sick leave pay
Previous vacation pay
Compensation for business trips

What is excluded from the day count:

Days on sick leave
Days on vacation
Days of unexcused absence
Other days when the employee did not work and was not paid

Worked Example

Employee earns EUR 1,800 gross monthly, took 5 sick days in January, and goes on vacation for 10 working days in July 2026.

Reference period: January-June 2026

| Month | Earnings | Working Days | Days Worked | |-------|----------|-------------|-------------| | January | EUR 1,350 (reduced for sick leave) | 22 | 17 | | February | EUR 1,800 | 20 | 20 | | March | EUR 1,800 | 22 | 22 | | April | EUR 1,800 | 21 | 21 | | May | EUR 1,800 + EUR 200 overtime | 20 | 20 | | June | EUR 1,800 | 21 | 21 | | Total | EUR 10,550 | | 121 days |

Average daily earnings: EUR 10,550 / 121 = EUR 87.19

Vacation pay for 10 days: EUR 87.19 x 10 = EUR 871.90

Compare this to a simple proration of monthly salary: EUR 1,800 / 21 average working days x 10 = EUR 857.14. The difference (EUR 14.76) comes from the overtime in May being included in the average. Over a full 20-day vacation, discrepancies widen.

(Employers who use a simplified "just pay the monthly salary" approach will be technically incorrect. Whether the error favors the employee or the employer depends on the specific earnings pattern.)

When Vacation Pay Must Be Paid

Before the vacation begins. The Labour Law requires that vacation pay be transferred no later than one day before the vacation starts. Paying it with the regular monthly salary (if the vacation falls mid-month and payday is at the end) violates this requirement.

In practice, many employers pay vacation pay with the preceding salary cycle. This is acceptable as long as the employee has the funds before the vacation.

Vacation Accrual: The Employer's Balance Sheet

Prudent employers accrue vacation reserves monthly. The logic:

Each month, the employee "earns" approximately 1.67 vacation days (20 days / 12 months)
The accrual should reflect the average daily earnings plus employer VSAOI

For an employee at EUR 2,000 gross:

Monthly vacation accrual: EUR 2,000 / 21 working days x 1.67 days = EUR 159.05
VSAOI on accrual: EUR 159.05 x 23.59% = EUR 37.52
Total monthly accrual: EUR 196.57

Companies that do not accrue vacation reserves face a cash flow impact when multiple employees take vacation in the same period (typically July-August in Latvia). We have seen companies with 30+ employees face unplanned payroll spikes of EUR 15,000-20,000 in summer months.

Unused Vacation: What Happens at Termination

When employment ends, the employer must compensate all unused vacation days. This compensation is calculated using the same average daily earnings method.

An employee with 35 unused vacation days (not uncommon when carryover accumulates) earning EUR 2,500 gross:

Average daily earnings: approximately EUR 119
Vacation compensation: EUR 119 x 35 = EUR 4,165
Plus employer VSAOI: EUR 982.53
Total cost: EUR 5,147.53

Latvian law does not cap vacation carryover in the way some countries do. Vacation earned but not taken can accumulate for up to 2 years before the employer can insist the employee use it. After 2 years, the entitlement remains but the employer gains the right to schedule the vacation unilaterally.

Common Mistakes in Vacation Pay

Using calendar days instead of working days. The 4-week minimum translates to 20 working days, not 28 calendar days. Holidays falling within the vacation period extend the vacation -- they are not counted as vacation days.

Ignoring the 6-month lookback. New employees who have worked less than 6 months have their average calculated from their actual employment period. Using a single month as the base (especially if it includes a sign-on bonus) inflates the vacation pay incorrectly.

Forgetting VSAOI on vacation pay. Vacation pay is regular income subject to both employee VSAOI (10.50%) and employer VSAOI (23.59%). Some employers budget only the gross vacation pay and are caught short on the contribution component.

Accurate Vacation Pay, Every Time

Vacation pay calculations require precision: the right reference period, the right inclusions, and timely payment. CORVUS ACCOUNTING & TAX handles vacation accruals, calculations, and reporting as part of our comprehensive payroll service, ensuring compliance and no surprises.

Let us manage your payroll details -- contact CORVUS →

Vacation Pay Calculation in Latvia