TimecardsCertain things are becoming outdated. Example: paper punch time cards and manual payroll. There is also an ongoing political movement to change “outdated” views of employment wage and hour law — in other words, there is a push in the government to make employment laws more “progressive” (a euphemism for socialized), to be modeled after the extensive leaves and employee protections of certain European countries.

Despite this, employee vacation accrual and paid time off policies are not mandatory benefits by employers — yet.

** UPDATE: In California, starting July 1, 2015, employers are required to provide sick time but not vacation time.

With worries about minimum wage increases and other burdens on employers, fringe benefits are often getting chopped. But before any business chooses to add, modify or phase out any employee vacation policy, there are several things that must be considered.

If an employer does offer a vacation policy as part of its employment package, certain restrictions are placed on the employer as to how they offer pay vacation time. For starters, employers must have a uniform vacation policy that they apply equally to all employees. Otherwise, the employer risks employee charges of discrimination, disparate treatment or unequal pay practices.

Once an employee has earned or accrued vacation under a policy, they must be allowed to take it. That does not mean that an employee can take vacation without the employer’s permission. But it does mean that an employer cannot act in bad faith to prevent the employee from enjoying the benefit.

Many states allow for a “use it or lose it” policy, meaning that vacation time on the books can be wiped off at the end of the year.  But some do not. For example, in California, accrued vacation time “is considered earned but deferred wages. So once the vacation time is logged, the amount owed for that time vests as though it is for labor performed.” That means that earned vacation time can never be taken away. The employer must pay it or allow it to be taken. In fact, if an employee terminates, the accrued vacation pay must be paid in the final paycheck, in full, even if the employee was fired (including for absenteeism). However, even in states like California, the employer can place a cap on the amount of vacation time that accrues on the books. But even such caps have to comply with certain labor laws.

Before changing their policies, employers should consider the financial impact. Will it require all vacation time to be paid out immediately? Will it violate use it or lose it rules? Will it create a big future liability on the books? Will it be unfair to future employees? Those are the questions an employer must consider before revising its Paid Time Off benefit plans.

Finally, how vacation time is applied and deducted for employees who are salaried can be complicated. For instance, an employer should not deduct accrued vacation time when a salaried employee is out of the office for periods during the day. This can cause the employer to owe additional wages to the salaried employee.

As progressive labor rights groups continue to lobby governments for laws requiring sick or vacation policies, it makes sense for employers to begin reviewing their options and the financial impact. Such plans have both an upside and a downside.

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