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Vacation Accrual

The company would like to institute the following vacation accrual policy but I have concerns about its legality- “After one year of employment, an employee becomes eligible to earn 40 hours paid vacation. All vacation time is accrued during the first 4 months of the year.” This means that an employee whose start date is 12/31/2015 becomes eligible to accrue vacation on 12/31/2016. They start accruing vacation on 01/01/2017 and by 04/30/2017, they have accrued 40 hours paid vacation. An employee whose start date is 05/01/2016 becomes eligible to accrue vacation on 05/01/2017; however they cannot actually accrue vacation until 01/01/2018. Assuming both employees are non-exempt, does this violate employment laws? If so, what law can I show the company president to help support this? Thank you, Abby.

Paid time off, including vacation time, is not regulated by federal law. Such benefits are considered a matter of agreement between employer and employee. Thus, employers are generally free to adopt vacation policies of their choosing.

Some states have adopted laws regarding vacation time. Most of these states simply require employers to abide by their own policies. Other states, most notably California, consider vacation time to be wages and such time is earned as work is performed. So, it’s important to know the laws in your state.

Though the law may not help you in preventing your company from adopting a strange vacation plan, here are some points to consider.

First and foremost, what is the advantage of the proposed policy? Including a waiting period for vacation benefits is standard; however, 6 months is the norm. One year is excessive. Do you really want employees to not have any break from their work for a full year? With this type of policy, employees are bound to become overworked and employee motivation and satisfaction will suffer. Also, why would you then make employees wait until the first of the year to start accruing their time? And, why would the total annual allotment be accrued in only four months? Are these things actually benefiting you or your employees?

Consider the real purpose of you offering vacation benefits. Is it to reduce expenses, reward employees or remain competitive? It may be a combination of all of these, but focusing on the main purpose will help you establish a policy that achieves your goal.

Vacation time is a staple of paid time off benefits that is highly regarded by employees. Adopting a vacation plain that is confusing or doesn’t seem to actually benefit employees will only result in employee dissatisfaction, resentment, and possibly turnover.

Employees want to feel that they’re being treated fairly. If I understand your proposed policy correctly, an employee who is hired early in the year actually waits longer to start accruing vacation than one who’s hired later in the year. Most employees will just not understand this and see it as inequitable.

Have you conducted a staff survey to determine what type of vacation plan would best suit your employees? Considering the size of your company you may even consider conducting a focus group or two to determine if the proposed policy would be well received. Basically, you want to make sure the proposed plan will actually be viewed as a good benefit.

Consider proposing a different vacation plan and be sure to have plenty of reasons explaining how it will better suit both the company’s and employees’ needs.

For example, how about a lump sum calendar year plan where employees receive their full 40 hour vacation entitlement on January 1st every year. Employees can still have a waiting period but they would receive a proportionate amount of their vacation entitlement on their anniversary date to cover them until the first of the year.

Let’s say the new plan starts January 1, 2017.

An employee who started on December 11, 2015 becomes eligible for vacation after one year of service, December 11, 2016. So, on that date he would receive a prorated amount of vacation time that would only cover him for December 11th -31st, which he would be allowed to carry over to the new year. Then, on January 1, 2017 he would receive the regular lump sum amount, 40 hours to cover him for the entire 2017 plan year.

The same principle would apply to an employee who started back on May 1, 2016. On the employee’s anniversary date, May 1, 2017, he would receive a prorated amount of vacation time to cover him from May 1st until January 1, 2018. Then, on January 1, 2018 he would receive his full vacation entitlement.


This entry was posted on Saturday, December 10th, 2016 at 12:47 pm and is filed under
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