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Vacation Pay Back

If the policy of the company dictates an accrual scheme but allows employees to take vacation in the calendar year ahead of the actual accrual, upon termination, can the employer ask that employees pay for the used but not yet accrued vacation time?

Vacation benefits are not regulated by federal law. Thus, employers are generally able to adopt such benefits as they wish. Though some states have adopted laws regarding vacation benefits, many simply require employers to adhere to their own policies. Still, it’s important to be aware of any applicable laws in your state.

Absent state law, employment contract, or collective bargaining agreement stating otherwise, employers may require employees who use vacation time prior to actually earning it to pay back any unearned time upon separation of employment.

Though an employer is permitted to recoup a vacation advance, the method in which it collects the money is regulated under the federal Fair Labor Standards Act (FLSA) and, in some cases, state law.

Under the FLSA, an employer may deduct the amount advanced for vacation hours from a non-exempt employee’s final paycheck, regardless of whether overtime hours were worked in the final week or whether the deduction brings the employee’s pay below the applicable minimum wage. 

Exempt employees are treated differently. Deductions from an exempt employee’s salary are permitted only in full-day increments for personal absences. So, employers must ensure that when recouping a vacation advance it’s doing so only for full day absences. If an employer’s records are clear enough to show the deductions are for full day absences then doing so is permitted. However, if records are not crystal clear then it’s best to not make any deductions to recoup the advance. In this case, employers are better off requesting the employee to pay back the advance outside of deducting it from their pay or going through small claims if the employee refuses. Of course, whether filing a claim in court is financially practical depends on the amount of the vacation advance.

Further, it’s in the employer’s best interest to clearly explain the requirement for employees to payback any used but unaccrued vacation time upon separation. Many employers opt to have employees sign a payback agreement each time vacation is used before it’s been earned.

Remember, many states have their own wage and hour laws. Some states restrict deductions from employees’ paychecks without their written acknowledgement and some states prohibit deductions from final paychecks. So, make sure you’re aware of any applicable laws in your state.


This entry was posted on Tuesday, December 20th, 2016 at 2:56 pm and is filed under
Benefits, Labor Laws.
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