Accrual of leave during garden leave may lead to an RVU penalty tax
Publication date: 15 September 2026
Employers who finance a period of paid leave for employees approaching retirement must also take into account any new leave entitlements that accrue during that leave period when performing the RVU-check. This additional accrual can create an unexpected RVU risk.
When an employee takes leave using leave entitlements that they have accumulated themselves, there is no RVU (Early Retirement Scheme). The situation is different when the employer finances the leave period. In that case, it must be assessed in advance whether the arrangement qualifies as an RVU. If it does, a final levy of 57.7% (64% from 2027 onwards) will be due. The so-called quantitative test, also known as the 70% test, plays a crucial role in this assessment.
The initial assessment may present a distorted picture
In practice, arrangements are frequently designed under which an employee is relieved from work for one or two years while continuing to receive salary, for example through the use of a leave savings scheme. At the time the 70% test is performed, the value of the employer-financed entitlements must remain within the limits of the quantitative test. This can easily create the impression that the RVU risk has been mitigated.
New entitlements during the leave period can create unexpected RVU issues
The employee will generally remain employed throughout the leave period. As a result, new leave entitlements may accrue, while other employment-related entitlements may also continue to build up. These additional rights likewise have a financial value that is borne by the employer. If this value has not been included in the calculation for the 70% test, the outcome of the test may be different than originally anticipated.
Extra attention required for long-term garden leave
Particularly in situations involving long periods of employer-financed leave immediately preceding retirement, the continued accrual of leave entitlements during the leave period deserves careful attention. An arrangement that initially appears to fall outside the scope of the RVU rules may, due to the continued accrual of entitlements, in fact qualify as an RVU from the outset, resulting in the employer becoming liable for the final levy.
Employers and employment lawyers are therefore advised, when determining the initial financing of the leave period, to identify which employment conditions and entitlements will continue to accrue during the period of release from work and to perform (or have performed) a 70% test that takes these accrued rights into account. A carefully drafted settlement agreement is then the final step in preventing unintended RVU consequences.
