Waiting Periods for Vacation Accruals May Be on the Way Out

​Employers are moving away from imposing waiting periods for vacation accruals because of the proliferation of paid-sick-leave entitlements, according to Kyle Petersen, an attorney with Seyfarth Shaw in Chicago.

"The paid-sick-leave ordinances generally require accruals beginning on day one of employment and would otherwise require employers to manage two separate accrual systems" if they were to keep waiting periods for vacation but not sick leave, she explained.

Laura Fant, an attorney with Proskauer in New York City, cautioned that maintaining a paid-time-off (PTO) policy as opposed to separate vacation and sick-time policies will not enable employers to circumvent legal requirements when it comes to applicable paid-sick-leave rules. She said most paid-sick-leave laws "require new employees to begin accruing time immediately upon commencing employment." She added that this restriction "would still apply even if state law does not establish any rules when it comes to vacation accrual waiting periods."

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While accrual generally begins immediately with paid sick leave laws, most jurisdictions with such laws have a 90-day waiting period for usage, said Charles Thompson IV, an attorney with Ogletree Deakins in San Francisco. There are exceptions to such waiting periods though, such as in Long Beach, Calif., where there is no waiting period for accruals or usage, he noted.

Some employers let employees begin accruing paid vacation upon hire but not start using it until a later date such as completion of six months of employment, noted Debra Friedman, an attorney with Cozen O'Connor in Philadelphia and New York City. She said some paid-sick-leave laws have specific requirements on the accrual, carryover and use of paid sick leave, which must be complied with in setting caps on PTO.

Accrual Waiting Periods 'Vary Widely'

While employers may be trending away from vacation waiting periods, paid-sick-leave entitlements aren't in place everywhere to block their application.

Fant said "vacation accrual waiting periods can vary widely depending on a number of factors, including the nature of the industry, geographic location and the size of the workforce. I have seen policies where employees begin accruing vacation time anywhere from immediately upon joining the company all the way to a year after the start of employment."

"If there is any waiting period at all, it is typically somewhere between 90 days and 12 months," said Peter Hall, an attorney with Chamberlain Hrdlicka in Atlanta.

"There are several considerations that contribute to the kind of waiting period that makes sense for any particular employer," he said. For example, in states where vacation time must be paid out on termination, employers with short-tenure workforces and high turnover may choose longer waiting periods so that they are not routinely paying out vacation to workers who quit or are fired within just a few months of starting, he noted.

"In industries with low turnover and a workforce that tends not to even use all available vacation time, employers may choose to have a shorter waiting period or none at all as a relatively low-cost, low-risk benefit to employees," he said.

Andrew Sherrod, an attorney with Hirschler Fleischer in Richmond, Va., said the employer may opt for a longer waiting period since "as a practical matter, employers want to incentivize new employees to focus on acclimating to the company and learning the competencies of [their] new position, rather than immediately taking time off."
But, he added, "A reason that employers might choose a shorter waiting period would be for recruitment or retention purposes. Paid time off is attractive to individuals who are interested in work/life balance and want flexibility right away."

Accrued Vacation

Some employers use the payout of accrued vacation as an incentive for resigning employees to provide advance notice, Fant said. For these employers, payout of accrued vacation time is forfeited if the requested notice period is not provided.

However, some states, such as California, require that accrued, unused vacation be paid out upon separation of employment. California does allow a cap on vacation accrual—that is, once a certain amount of vacation time is accrued without any time being used, no further vacation time may be earned until the balance falls below the accrual cap.

Half the states require an employer to pay out accrued paid vacation after termination, said Susan Warner, an attorney with Nelson Mullins in Jacksonville, Fla. That means the employer may be obligated to pay out unused vacation even for an employee that was fired for cause, she observed.

Other states, such as New York, do not require employers to pay out unused vacation time upon separation, as long as this forfeiture rule is communicated in writing to employees, Fant noted.

Rather than use-it-or-lose-it policies, some employers have vacation accrual caps, which Hall said typically are one-and-a-half to two times the employee's annual accrual. Accrual caps can save employers from having to pay months' worth of vacation to a terminated employee who has been banking his or her vacation for years. "Accrual caps also reinforce the purpose of vacation in the first place, which is to allow employees to take a break, recharge and return to work refreshed and re-energized," he said.

"If businesses offer 'too good to be true' vacation time, then employees may take advantage of that policy, whether it be a high-level executive or entry-level employee," Warner said. "Employers should enact sensible caps on the accrual of vacation time, allowing employees the leave they need and balancing the business interests of the employer."

 

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