A small Estonian company may finish December payroll while leave days remain in an HR spreadsheet. If the accounting balance is not reconciled to those days, the year-end liabilities can be understated. The task is more precise than multiplying one company-wide day count by a salary figure: entitlement depends on the contract, qualifying periods and the year in which each day was earned.
I am Dmitri Schmidt, CEO of AccRes. This example concerns ordinary annual leave under an Estonian employment contract. It shows a documented year-end estimate, not a promise of next year's exact vacation pay. Board fees, special leave and disputed entitlements need separate treatment.
Reconcile earned days employee by employee
Employment Contracts Act § 55 presumes 28 calendar days of annual leave, unless a longer period is agreed or the law provides otherwise. Under § 68(1)–(4), the earned amount depends on qualifying time. Temporary incapacity generally counts, while parental leave and unpaid leave agreed between the parties generally do not. Verify join dates, leave history and absences before trusting a software balance.
Use a dated table with opening days by earning year, days earned, days taken and closing days. For illustration, an employee earned 20 days in 2026 and took 12, leaving 8. The arithmetic is 20 − 12 = 8; the assumption that 20 days were earned must have its own evidence. Do not apply it as a universal annual entitlement.
Keep the earning years separate
Section 68(5)–(6) carries unused leave into the next year but ordinarily makes a claim expire one year after the earning calendar year ends. Expiry is suspended during maternity, paternity, adoptive or parental leave and during military or alternative service. Check those facts before writing off an older balance.
An employee cannot simply exchange unused leave for cash during employment: § 70(3) makes such an agreement void. On termination, § 71 requires cash compensation for earned, unused and unexpired annual leave. A balance sheet estimate is therefore not the same as an immediately payable termination settlement.
Estimate the gross liability at the reporting date
Accounting Act § 5 requires accrual accounting and year-end adjusting entries. Earned leave can create a pay liability even when no cash has yet been transferred. Section 16 calls for prudent presentation, and § 6 requires support for the entry. Keep the leave calculation, rate assumption and approval with the journal.
A transparent illustration is 8 verified unused days × an estimated EUR 90 gross daily rate = EUR 720 gross. That rate is an assumption for the accounting estimate. Actual vacation pay is determined when needed under the average wage regulation §§ 2 and 4; fixed-wage and other cases can follow different rules. Consider applicable employer charges separately. Do not show EUR 720 as guaranteed net pay.
Post the change, not a duplicate expense
The EUR 720 is an estimated closing gross liability. If the employee's prior gross liability balance is EUR 500, the illustrative change is EUR 220 before other adjustments. Compare the new estimate with the opening balance and payments already made. Employer charges and prepaid vacation pay require their own reconciliation.
When leave is later taken or employment ends, compare actual payroll to the estimate and adjust the difference. Booking the entire payment as fresh expense without releasing the existing liability would double count part of the cost.
I ask for leave balances by earning year, not just one total. That exposes days near expiry and cases where the expiry clock stopped.
A reliable year-end leave liability starts with the legal day balance. Confirm the contract and qualifying time, separate earning years, document a reasonable pay estimate and reconcile it with the existing journal balance. In the illustration, eight days at EUR 90 gross give EUR 720 gross; the eventual payment must still follow the statutory calculation at the relevant date.
If HR days and the ledger do not agree, contact AccRes. We can reconcile the leave schedule and accounting before the annual report.