Put Vacation Policies in Writing

By Joanne Deschenaux Jun 16, 2015
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Summer is vacation time for many employees. But as workers plan trips to the beach and other destinations, employers may be wondering how they can accommodate time-off requests without multiple employee absences threatening company efficiency. How much advance notice should employers require? Who gets priority for vacation requests?

No federal or state law requires employers to offer paid vacation days, so employers have a lot of leeway in setting the rules, according to Lisa Guerin, J.D., an author specializing in employment law.

“The number one thing is having a written policy,” Doug Kauffman, a labor and employment attorney with Balch & Bingham, told SHRM Online. “Putting all the rules down in writing establishes what people are eligible for. [The policy] should cover all contingencies. That is key.”

Don’t Forget Details

“Start with the easy things,” Kauffman advised: “How much vacation do employees get? How fast does it accrue?”

But don’t forget to address more-complex issues. “Can an employee use vacation before it has been accrued? What type of notice is required? What if an employee doesn’t use all of his or her vacation? Is a ‘use-it-or-lose-it’ policy advisable? If not, how much vacation can be banked? What if the worker leaves employment? Does the employer have to pay for unused vacation?”

Kauffman noted that employers who allow employees to use vacation before it has accrued “are taking a risk. If the worker leaves employment before the vacation has accrued, the company will have lost the time, but some employers will choose to allow” the practice.

As to what kind of notice to require, an employer may choose to establish guidelines, by saying in writing, for example, that leave should be requested as soon as possible after the employee becomes aware of the need for the time but no later than one week prior to when the time off will be taken.

And regarding priority of leave requests, “seniority is probably the fairest way to decide who gets to take leave if several employees request the same time off and it is an issue for the department where they work,” Kauffman said.

‘Use It or Lose It’

The most complex question regarding leave is probably whether employers need to pay departing employees for leave that they have accrued but have not used. This is the one area where state laws do come into play, Kauffman said.

Several states have legislated on the issue of use-it-or-lose-it policies, under which employees must forfeit vacation time they have already accrued unless they take it by a certain time, Guerin said. In these states, vacation time is considered a form of compensation, which must be cashed out when the employee quits or is fired, she explained.

Even in states that have not enacted such laws, employers that have policies saying vacation is paid out at the end of employment must comply with those policies, according to Donna Ballman, a Florida attorney who represents employees.

However, if there is no state law and no established policy, employers can refuse to pay out unused vacation time at the end of employment by implementing a use it or lose it vacation policy. Most employers can also require employees to use their vacation by a certain date, usually the end of the year, or lose it, Ballman said.

State Laws

State laws governing pay for unused vacation time include the following:

California: All accrued vacation time must be paid out when employment ends. California also prohibits policies that make employees take vacation leave by a certain date or lose it.

Illinois: Employers have to pay out accrued vacation time at the end of employment unless a collective bargaining agreement with a union provides otherwise. While they can have a policy saying employees have to use vacation time by a certain date or lose it, employers must permit employees a reasonable opportunity to take those vacation days before they leave the company.

Indiana: While employers can have a use-it-or-lose-it policy, they have to pay out accrued vacation time if their vacation policy is silent on the issue.

Louisiana: Vacation pay is earned wages, so policies requiring the forfeiture of earned vacation pay are not enforceable. However, employers may implement use-it-or-lose-it policies that require employees to use vacation time by a certain date or lose it.

Maryland: Employers can implement use-it-or-lose-it policies; if a vacation policy is silent on the issue, accrued vacation time must be paid out at the end of employment.

Massachusetts: Employers have to pay out accrued vacation time at the end of employment. While they can have a policy saying employees have to use vacation time by a certain date or lose it, employers must permit employees a reasonable opportunity to take those vacation days before they leave the company.

Michigan: Employers can implement use-it-or-lose-it policies; if a vacation policy is silent on the issue, accrued vacation time must be paid out at the end of employment.

Montana: In Montana, employers can’t take away earned vacation time or fail to pay it out for any reason.

Nebraska: Employers must pay out earned vacation time and cannot have policies saying employees must use vacation leave by a certain date or lose it.

New York: If a vacation policy is silent on the issue, accrued vacation time must be paid out at the end of employment.

North Carolina: If a vacation policy is silent on the issue, accrued vacation time must be paid out at the end of employment.

North Dakota: Employers can’t require employees to forfeit accrued or earned vacation leave upon separation from employment, regardless of the reason. However, employers can implement policies saying vacation leave must be used by a certain date or will be lost.

Ohio: While use-it-or-lose-it policies are allowed, accrued vacation time must be paid out at the end of employment if a vacation policy is silent on the matter.

Oregon: Use-it-or-lose-it policies are allowed, but employers must pay out accrued vacation time if a vacation policy is silent on the issue.

Rhode Island: Employers must pay an employee who has completed at least one year of service for any vacation leave accrued in accordance with company policy or contract on the next regular payday for the employee when he or she leaves the company.

West Virginia: If a vacation policy is silent on the matter, accrued vacation time has to be paid out at the end of employment. Otherwise, employers are allowed to implement use-it-or-lose-it policies.

Wyoming: Employers cannot require employees to forfeit accrued or earned vacation time at the end of employment.

Joanne Deschenaux, J.D., is SHRM’s senior legal editor.

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