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Change Vacation Policy

Our vacation policy is based on our fiscal year 7/1-6/30, but we are considering changing to calendar year to prevent having too many employees off during the month of June as they try to use up their remaining vacation. However, changing the schedule will cause a problem for employees who use most of their time in the 2nd half of the calendar year. Is there anything wrong with awarding those employees an extra week of time for 7/1-12/31 time period as we prepare to switch over on 1/1?

Employers are generally free to establish vacation policies of their choosing. So, offering a select group of employees an extra week of vacation is at the employer’s discretion. However, there are a few things to consider.

Offering different amounts of vacation time to different employees should be based on employment criteria i.e. full time vs part time or exempt vs non-exempt. Establishing nondiscriminatory employment related criteria reduces the risk of a discrimination claim.

What criteria are being used to determine which employees would receive the extra week of vacation time? Is it based solely on past usage of vacation time? Or is it based on vacation requests you’ve already received? What if an employee outside your selected group has been holding his vacation time to use in the second half of the year and he’s not given the same benefit as other employees? Regardless, the criteria for different vacation entitlements would be based on employees’ personal needs not employment based criteria.

Only offering a select group of employees an additional week of vacation time based on their personal needs is setting the stage for disgruntled employees and increasing your risk of a discrimination claim. It’s important to treat employees fairly across the board.

There are a couple other options.

Though not the most common or advisable option, you can consider offering all employees an extra week of vacation.

The more common option would be to prorate vacation time and provide employees advanced notice of the transition period/process. Basically, 7/1/15 to 6/30/16 employees receive their normal entitlement. Then, employees receive a prorated amount on 7/1/16 that will cover them until 12/31/16. Then on 1/1/17, the new calendar year would begin and employees would receive their normal entitlement.

So, let’s say employees receive 10 days vacation per year in a lump sum. They’ve already received their entitlement for this fiscal year. On 7/1/16, employees would receive only half their normal entitlement, 5 days vacation, to cover them until 12/31/16. Again, then on 1/1/17, the new calendar year would begin and employees would receive their normal entitlement.

Remember to clearly communicate the new policy and explain the transition period to all employees in a timely manner.

It’s also important to mention that some states have adopted laws regarding the administration of vacation time. Feel free to comment with the state listed and we can research any applicable state laws.


This entry was posted on Tuesday, July 21st, 2015 at 8:04 pm and is filed under
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