Human Resource Blog

States that require / permit vacation carryover

Can you confirm for me that the only states in the U.S. that mandate vacation carryover are:

California
Rhode Island
Montana
Illinois

If only it were that easy!! No, we cannot confirm your statement, because it is not entirely accurate.

First, just to be sure we are clarifying terms, a vacation carryover policy does not set a “sunset date” or expiration date for earned vacation time. The opposite is the “use it or lose it” policy where current employees must use their vacation time by a certain date or it expires. The term most commonly used in HR is “use it or lose it policy.” Although it may seem like a difference in semantics, there are actually not any states that mandate vacation carryover, there are only states that prohibit “use it or lose it” policies.

“Use it or lose it” refers only to current employees. It does not address whether an employee is entitled to payment for unused vacation at termination, which is an entirely separate issue.

In any state it is lawful for you to allow employees to carry vacation over into the following year. Every state permits this company policy. In addition, many — but not all — states permit a “use it or lose it” policy if it is specified in writing, and the employee has acknowledged receipt of this policy, such as signing a handbook page.

Every state has separate, distinct statutes and court rulings on paid vacations for employees. The laws are so different that it is very hard to answer a catch-all question like this one, but we will do our best to present a summary.

In California, Montana and Nebraska, the courts have specifically ruled that a “use it or lose it” vacation policy is unlawful. In California, there is no law that you must allow employees to carry over vacation. However, if an employees vacation expires unused, you must pay the empoyee for that time. This is true for current employees. If 10 hours of vacation expires on Dec. 31, 2011, the employee must be paid for the 10 hours of vacation on that paycheck.

Illinois, like Hawaii, permits the “use it or lose it” policy, meaning that for current employees, an employer can require that vacation be used by a certain date. Any vacation not used by that date is lost. These states require that employees be given a reasonable opportunity to use vacation time, meaning if an employee has made repeated vacation requests and been turned down, he or she cannot lose the vacation. However, if the employee is given ample opportunity to take vacation, and neglects to use it, it can be lost.

Rhode Island, Arizona and Wyoming are a bit problematic. In those states, there is no statute or court ruling that would prohibit a “use it or lose it” policy, however, it is not easy to predict how the courts in those states would rule on such a case if it were presented. But those states do not specifically prohibit a “use it or lose it” policy.

In a number of other states, including Alabama and Arkanses, it is presumed that “use it or lose it” is lawful, because there is no statute or court case prohibiting it. In these states, based on the contractual nature of employment upheld by the courts in the past, it is likely that “use it or lose it” is lawful and would survive a test in court.

Remember that the way the law works is this: everything is lawful until a law is passed to make it illegal. However, the courts sometimes interpret existing laws in unexpected ways.

Because this is such a complex topic, feel free to post comments or additional questions with a query on one state, and we will address the vacation laws in more detail.