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Aug09

Paying Unused Vacation Time

At the end of the year, if an employee has not used all their accrued vacation, is our company required to pay them for the unused portion? Our handbook states that vacation must be used and cannot be carried forward – it is “use it lose it”. There is no provision for paying an employee for vacation time at his request without his taking the time off, during which time he will be payed regular pay for the hours worked as usual. If we do this, will it in any way violate the status as set forth in the handbook?

Paid time off benefits are not governed by federal law. They’re considered a matter of agreement between employer and employee. Thus, employers are generally free to adopt vacation policies at their discretion. Keep in mind some states have adopted legislation regarding the administration of such benefits. Feel free to post a comment with the state and we can research any applicable state laws.

Absent state law or employment contract stating otherwise, employers can adopt a policy with use-it-or-lose-it, rollover and payout upon separation provisions.  It’s advisable to ensure paid time off policies are clearly written and consistently and uniformly enforced.

Though not so common, some employers allow employees to cash out their accrued vacation time. Doing so is an additional benefit to employees and can be valuable to employees in difficult financial situations. However, the downside is that by cashing out vacation time employees don’t actually have vacation time to use later. Meaning, they won’t get the time off from work often needed to rest and relax.

Whether a cash out option negates a use-it-or-lose-it policy depends on the wording of the eligibility criteria. If any employee under any circumstance at any time is able to cash out their accrued vacation time, then, yes, doing so conflicts with the current policy. In this case, an employee on the last day of the vacation plan year or on the last day of employment can request the cash out option. So, there would need to be clear eligibility criteria for cashing out vacation time in order for it not to conflict with the use-it-or-lose-it policy.

HTH!

This entry was posted on Tuesday, August 9th, 2016 at 6:42 pm and is filed under
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