Human Resource Blog

Canceling paid vacation benefits

Because of economic times our business can no longer afford paid vacations. Can I discontinue them and how do I go about doing it? How do I go about changing the benefits hand out?
Thank you

In a few states like California, this would be illegal — vacation time is considered earned wages and you would have to pay employees for the vacation time they had already earned, or allow them to use it.

However, in most states this is legal. The employer can establish the policy regarding paid vacations, and the employer can change it at any time. This change is sure to reduce employee morale drastically — you are literally taking something away from the employees.

A better way to do this would be to temporarily impose a moratorium on employees using vacation time. Many companies are doing this during the current economic crises. You would simply send out a memo that no paid vacations will be approved until September 1, 2010 due to financial constraints. Employees would continue to accrue vacation time and to keep the vacation time they have already earned. (Then in late August you could review this policy to see if you need to extend it.)

Another option would be to allow employees to use the vacation time they have already accrued, but not to accrue any more vacation time through the end of 2010.

If you are determined to eliminate  paid vacations altogether, and you believe that is legal in your state, simply attach a memo to each paycheck that states “Effective (date) the company no longer offers paid vacations.” Then stand back and watch the fireworks. You can ask that employees sign and return a copy of the memo, but this simply demonstrates that they have been informed of the change. You do not require their permission to make this change in benefits.