External leave savings through a foundation
Employees can accumulate a leave balance of one hundred times the weekly working hours, i.e. the equivalent of two annual salaries. This does not happen overnight, as the balance must be supplied from sources such as excess vacation time and overtime. As long as the saved leave is not taken, the employee does not have to pay taxes. This favorable tax treatment can sometimes lead to vacation accumulation.
The reasons for external leave savings
By placing leave savings externally, the employee is protected from employer bankruptcy and the employer does not have the disadvantage that salary increases result in having to upgrade the leave balance. By agreeing that the external leave balance will not be time-barred, the employee can save long-term in the form of leave for, for example, a sabbatical, part-time retirement, or early retirement. The employer will naturally have to approve the taking of leave. Saving for external leave therefore does not create a way to take leave at will.
Leave savings can replace existing leave and benefit plans or complement existing measures. What is unique about leave savings is that employees can decide for themselves how to use the balance. There also is no mandatory spending as is the case in, for example, a senior staff scheme. This liberty of spending is entirely of our time.
The leave saving foundation
An appropriate way to implement external leave savings is through a leave savings foundation. The foundation is the legal owner of the leave balance. The employee cannot dispose of the leave balance him or herself. Employer and employee agree on sources (e.g. excess vacation days) and uses (e.g. sabbatical, part-time or early retirement) in a leave agreement. An employer can set up a company-owned leave savings foundation or join a leave savings foundation that acts for multiple employers. The latter is useful if not too many employees are involved. When changing jobs, the old and new employers can make arrangements and the balance can be transferred.
Investments are an important area of concern. The goal should be to achieve a rate of return equal to (a modest) salary increase. External leave savings create a clear risk transition towards the employee. The savings and/or investment characteristic is therefore very important and employees should be well informed.