Compensation for Unused Annual Leave in Ukraine at the End of 2026

Unused annual leave does not expire on December 31: it is tracked by the employee’s working year, not the calendar year. When an employee leaves, the employer pays compensation for unused annual leave for every outstanding day. While employment continues, the general rule is that only the part of each working year’s leave above 24 calendar days can be paid out, and only at the employee’s request.

These rules come from Article 24 of the Law of Ukraine “On Leave” and are mirrored in Article 83 of the Labor Code of Ukraine. Under martial law, Law No. 2136-IX “On the Organization of Labor Relations under Martial Law” adds special rules of its own. At year-end, the accounting team also checks the vacation pay provision, and the employer approves the leave schedule for 2027. The rules below are stated as of October 2026.

Does unused leave expire at the end of the year?

No. For each working year completed, an employee is entitled to at least 24 calendar days of basic annual leave, and the working year starts on the day the employment contract is signed (Article 6 of the Law “On Leave”). For someone hired on March 1, the working year ends in late February, so December 31 changes nothing for their leave.

In peacetime, the law limits how much leave can pile up. The unused part of leave must be granted no later than 12 months after the end of the working year (Part 2 of Article 12 of the Law), and failing to grant full annual leave two years in a row is prohibited (Part 5 of Article 11). Neither rule applies under martial law, so balances from previous working years can lawfully accumulate. They count toward compensation on termination and toward the vacation pay provision, if the company maintains one.

What martial law changes

Article 12 of Law No. 2136-IX gives employers three levers:

• limit basic annual leave to 24 calendar days for the current working year and defer any days above 24 until martial law ends or is lifted;
• grant those unused days as unpaid leave at the employer’s discretion;
• refuse to grant unused days of annual leave.

None of this reduces the final settlement on termination. The same article refers back to Article 24 of the Law “On Leave”, so compensation covers every unused day, including deferred ones.

The unpaid-leave lever has an exception. In Decision No. 3-r/2026 of May 19, 2026, the Constitutional Court of Ukraine held the rule allowing unused days to be granted without pay unconstitutional insofar as it fails to guarantee employees under 18 and employees with disabilities paid basic annual leave whose statutory minimum exceeds 24 days. Those provisions lost force on the day the decision was adopted. Employers should therefore schedule full-length basic leave for minors and employees with disabilities and pay for all of it.

When is compensation for unused leave paid?

The law sets out several situations, each with its own conditions.

Situation	What is compensated	Condition
Termination of employment	All unused days of annual leave and of additional leave for employees with children	Paid within the final settlement deadlines (Article 116 of the Labor Code)
Employment continues	Part of annual leave	Employee’s request; the annual and additional leave granted must total at least 24 calendar days
Conscription or enlistment for military service	All unused days of annual leave and of additional leave for employees with children	Employee’s application no later than the last day of the month in which they were released from work
Death of the employee	Unused days of these types of leave that were not paid out during the employee’s lifetime	Paid to family members or, if there are none, included in the estate

Additional leave for employees with children is the leave under Article 19 of the Law; it is also granted to employees whose adult child has had a Group I (subgroup A) disability since childhood. The law classifies it as social leave rather than annual leave (Article 4), so the rule on converting part of leave into cash does not cover it, and the employee is paid for it only in the situations listed in the table.

Which days can be paid out without terminating employment

This is the most common question. The law sets a condition: the annual and additional leave actually granted to the employee must total at least 24 calendar days (Article 24 of the Law). The Ministry of Social Policy of Ukraine has explained that this condition applies to each working year separately. The employee is granted at least 24 calendar days of leave for that year, and the remaining days of the same year can be paid out, for example under the same internal order that grants the 24 days (letter No. 731/13/116-16 of December 7, 2016).

In practice this means:

• an employee entitled to only 24 days of basic leave a year cannot convert them into cash while still employed, even if dozens of days have built up over past years;
• an employee with additional annual leave, for example for irregular working hours, hazardous or arduous working conditions or under a collective agreement, can be paid for exactly those days;
• employees under 18 cannot have any type of leave replaced with cash, but on termination they receive compensation on the usual terms.

How to calculate compensation for unused leave

The calculation follows the Procedure for Calculating Average Wages, approved by Cabinet of Ministers of Ukraine Resolution No. 100 of February 8, 1995 (Procedure No. 100). If some of the unused days were earned up to December 31, 2023, the compensation is calculated in two parts.

1. Establish the number of unused days from the leave records the employer is required to keep (Article 10 of the Law “On Leave”). Split the days into two groups: days earned up to December 31, 2023, and days earned later.
2. For the first group, calculate the average daily wage from payments accrued in 2023 (second paragraph of clause 2 of Procedure No. 100).
3. For the second group, the general rule is to use payments for the 12 calendar months before the month in which compensation is paid. For a December 2026 termination, that means December 2025 to November 2026. If the employee has worked less than a year, the actual period worked is used, and if there were no earnings in the reference period, the calculation is based on the base salary (clauses 2 and 4 of Procedure No. 100).
4. Divide each period’s earnings by its number of calendar days (clause 7 of Procedure No. 100). Public holidays are not deducted under martial law because Article 73 of the Labor Code, which lists them, does not apply. The Ministry of Economy of Ukraine confirmed this in a clarification of February 1, 2024.
5. Multiply each average daily wage by the number of days in its group and add up the results.

Earnings for the calculation include:

• all accrued wages except the payments listed in clause 4 of Procedure No. 100, such as the compensation for unused leave itself, financial assistance and severance pay;
• pay for previous annual leave and sick pay;
• bonuses for performance over a period, in the portions attributable to the months of the reference period (clause 3 of Procedure No. 100).

Periods when the employee did not work and received no pay or only partial pay, such as unpaid leave, are excluded from the reference period.

Calculation example

An employee leaves in December 2026 with 18 unused days on record. Six of them were earned up to December 31, 2023, and twelve later. Assume earnings of UAH 300,000 for 2023 and UAH 480,000 for December 2025 to November 2026, with no periods to exclude. As in the Ministry of Economy’s example, the average daily wage is rounded to two decimal places before multiplying.

Part of compensation	Reference period	Average daily wage, UAH	Days	Amount, UAH
Days earned up to Dec 31, 2023	Jan 1 – Dec 31, 2023	300,000 ÷ 365 = 821.92	6	4,931.52
Days earned after Dec 31, 2023	Dec 1, 2025 – Nov 30, 2026	480,000 ÷ 365 = 1,315.07	12	15,780.84
Total			18	20,712.36

Taxes and the unified social contribution

Compensation is part of wages. Personal income tax (PIT) is withheld at 18% under clause 167.1 of the Tax Code of Ukraine (TCU), which comes to UAH 3,728.22 in the example. The military levy at 5% (subclause 1.3 of clause 16-1, subsection 10, section XX of the TCU) is UAH 1,035.62. The employee takes home UAH 15,948.52.

On top of that, the employer accrues the unified social contribution (USC) at the standard 22% rate, which is UAH 4,556.72; special rates apply to certain categories of employees. Compensation goes into the USC base for the month in which it is accrued, together with that month’s other payments and within the maximum base.

Payment deadline and liability for delay

Compensation must be paid on the day of termination or, if the employee did not work that day, no later than the day after they request the final settlement (Article 116 of the Labor Code). On the day of payment, the employer must notify the employee in writing of the amounts accrued and paid, broken down by type of payment. If the settlement is delayed through the employer’s fault and the amount is not in dispute, the employee is entitled to average earnings for the whole period of delay, capped at six months (Article 117 of the Labor Code).

The vacation pay provision at December 31: inventory and adjustment

Accumulated leave is a liability of the company. National Accounting Standard (NAS) 26 “Employee Benefits” treats annual leave as pay for time not worked. If the employee can use the days later, the company recognizes a liability by creating a provision, in effect a reserve for future vacation pay (clause 7 of NAS 26).

During the year, the provision is built up monthly by multiplying the wages actually accrued by a provisioning rate. The rate is the ratio of planned annual vacation pay to the planned payroll, including the USC (clause 13 of NAS 11 “Liabilities”). The planned payroll for 2027 should reflect expected pay rises, including the 2027 minimum wage proposed in the draft budget.

At the end of the year, the provision is reconciled with the actual liability as part of the year-end inventory count:

1. Unused provisions are verified during the two months before the balance sheet date (clause 10, section I of the Regulation on the Inventory of Assets and Liabilities, approved by Ministry of Finance of Ukraine Order No. 879 of September 2, 2014).
2. The year-end balance of the provision is calculated as each employee’s unused days of annual leave multiplied by their average daily pay, plus the USC (clause 8.2, section III of the Regulation). The day count includes balances from previous working years, including days deferred until after martial law, because they are compensated on termination.
3. Any difference from the accounting records is adjusted. The provision balance is reviewed at each balance sheet date and increased or reduced as needed (clause 17 of NAS 11).

For corporate income tax, the vacation pay provision creates no tax adjustments. Subclauses 139.1.1 and 139.1.2 of the TCU adjust the pre-tax financial result for creating and using provisions but expressly exclude provisions for vacation pay and the related USC.

Micro-enterprises and non-entrepreneurial companies that apply NAS 25 “Simplified Financial Statements” may skip the vacation pay provision and expense vacation pay when it is actually incurred (clause 7, section I of NAS 25). The chosen approach is best recorded in the accounting policy. We covered the specifics for NGOs and charitable foundations in our article on vacation pay provisions in non-profit organizations. Companies reporting under International Financial Reporting Standards (IFRS) recognize this liability under IAS 19 “Employee Benefits”.

What to consider in the 2027 leave schedule

The order in which employees take leave is set by a schedule. The employer agrees it with the elected body of the primary trade union organization (the trade union representative) or another body authorized to represent the workforce, approves it and communicates it to all employees (Article 10 of the Law “On Leave”, Article 79 of the Labor Code). The exact dates are agreed with each employee, and the employer must give written notice of the start of leave at least two weeks before the scheduled date.

The law sets no deadline for approving the schedule. It can be fixed in the collective agreement or the internal labor regulations. When drawing up the 2027 schedule, it is worth:

• planning for employees to use their balances from previous working years so that the liability does not grow;
• allowing full-length basic leave for employees under 18 and employees with disabilities;
• accounting for employees whom the law allows to take leave at a time convenient for them, including people under 18, people with disabilities, women before or after maternity leave, as well as women with two or more children under 15 or a child with a disability (Article 10 of the Law);
• keeping separate records of days deferred until after martial law.

UHY Prostir supports clients with payroll and HR records as well as accounting. To check leave balances and compensation calculations before you close 2026, talk to our team.

Nataliia Zavazhenko (Expert Accountant)