Pandemic Prompts Employers to Review Year-End Vacation Policies

As 2020 comes to an end, many employers have another pandemic-related issue to resolve: how to handle employees' unused vacation balances or competing requests to take time off before Dec. 31.

Employees who typically take time off to travel and visit relatives during the holidays may be opting to stay home as the coronavirus crisis continues. Other employees who skipped their spring and summer vacations may be scrambling to use their accrued paid time off (PTO) before they lose the time at the end of the year or reach their accrual cap.

"Employers concerned about a potential rush of employee requests to schedule paid vacation time off before the end of the year can take steps now to make sure staffing and productivity needs are met," said Mark Phillips, an attorney with Reed Smith in Los Angeles. Those steps should include communicating with employees to remind them of existing policies requiring advance notice of paid-time-off requests and carefully assessing the employer's business needs when deciding which requests to approve or deny.

In some circumstances, Phillips said, an employer's existing policies and procedures for requesting and scheduling employee vacations can be modified based on business needs and anticipated challenges, which should be done in consultation with legal counsel.

Managing Requests

Hopefully most employers have thought about how to handle year-end requests, said Michelle Barrett Falconer, an attorney with Littler in San Francisco. "But every day the COVID situation changes, and sometimes it's not possible to plan too far ahead," she noted.

A major concern for employers when there are higher than normal accruals of PTO at the end of the year is that many employees will seek to get the same days off. Employers may not be able to honor multiple requests without harming the business operations, observed Michael Sachs, an attorney with Clark Hill in San Francisco. He suggested that employers take the following steps:

• Remind employees how much accrued PTO they have left. Sometimes this reminder alone can trigger employees to think about using their vacation days.
• Remind employees that during the holidays or at the end of the year there are typically more requests for time off and that the employer may not be able to honor all requests.
• Set up and distribute a vacation calendar indicating the days people have already reserved for PTO. Seeing that other people are requesting PTO may encourage other employees to make such requests.
• Review the company's handbook and the laws of the applicable state. Some states prevent or restrict an employer from requiring that employees take vacation days. Likewise, the handbook may include certain protections for vacation days beyond those found in the state laws.

"The more information the employer can provide the employee about what dates are available for PTO, the better," Sachs said.

Falconer recommended that employers be upfront and realistic about staff operational needs. Employers might ask workers to be flexible, for example by taking two- or three-day absences instead of a full week, so their colleagues can take time off, too, she said.

Policy Changes

Employers with "use-it-or-lose-it" vacation policies that eliminate vacation balances at the end of the year may consider allowing employees to cash out or roll over their unused time into 2021. 

Employers will have to consider business and legal factors when deciding whether to change their policies. On the business side, Sachs said, employers need to think about the financial impact of allowing employees to cash out days.

"Given the current higher-than-usual accrual, cashing out these days can be a significant financial investment for the company," he said. "Likewise, allowing employees to roll over days may impact business continuity in the following year."

If employees have accrued significantly more vacation days than normal, it may cause disruption in 2021 as employees use these additional days.

Legal issues can vary dramatically from state to state, too. Employers need to consider how state laws treat time that is rolled over or cashed out and also review their own handbooks and vacation policies on the topic.

Falconer mentioned that PTO policies differ from employer to employer. Sometimes they account for both vacation and sick leave. "If it's both, there are different considerations than if it's just vacation," she said, because some jurisdictions have different rules for employer sick-leave policies versus vacation policies.

Furthermore, some jurisdictions mandate paid sick leave, and each state or local law has different requirements for how that time must be accrued, used and rolled over to the next year.

If employers decide to allow workers to roll over time, they need to consider whether a cap will apply to the number of rollover days and how the use of the rollover days will be coordinated with PTO accrued in the following year, explained Andrew Douglas, an attorney with Reed Smith in Chicago.

If employers want to let workers cash out unused PTO days, they may need to address complex IRS rules. Employers would also need to anticipate any additional cash-flow issues stemming from the payout, Douglas noted.

Reasonable Opportunity

In some states, such as California and Montana, use-it-or-lose-it policies are prohibited. In other states, such as Illinois and North Dakota, employers must give employees a reasonable opportunity to use accrued paid vacation time. Employers should be mindful of their obligations, Douglas said, and carefully assess the company's business needs and whether the employee's request is consistent with the company's written policies regarding advance notice and the approval process.

When an employee's request is denied, employers should clearly communicate the business reasons for the decision.

"At a time when the COVID-19 pandemic has placed unprecedented stress on business operations and created employee scheduling issues, those business pressures can be taken into account as part of the approval process," Douglas said.