As the summer comes to a close, employers may wish to evaluate their vacation policies to determine if they are in keeping with company needs. Employers generally offer some type of paid vacation benefit to attract and retain employees.
While federal law does not require employers to offer paid vacation, once an employer makes it available, the vacation policy should be carefully drafted to avoid interpretation issues and to comply with state law requirements.
Any vacation policy should be clearly drafted and communicated to employees.
Eligibility
Employers will first have to determine who will be eligible for vacation and at what amount. Vacation eligibility can be determined by class of employee, assuming such classes are not organized in a discriminatory manner. Vacation days can be earned based on years of service or other objective factors.
When Vacation is Earned
Policies should be drafted to clearly identify when vacation is earned. After vacation is earned, an employee will have a greater claim to payment at termination of employment or year-end (in accordance with state law). Policies can be drafted so that vacation time is accrued throughout the year, rather than earned all at once.
PTO or Vacation/Sick Time
Employers must consider whether to offer general paid time off (PTO), or split the benefit into vacation vs. sick days. With sick/vacation days, employers may find themselves monitoring use of time out of the office. On the other hand, state laws may provide more opportunity for the employer to implement a forfeit policy if a sick day is not used, as compared to a general day of PTO.
When Requests Have to be Made/Approval
Employers will want to monitor the use of vacation time, particularly when the employer cannot afford to have many employees out at the same time. Employers should clearly identify a process for requesting and getting time off approved. Employees should be instructed to follow the established process or be advised that their request for time off may not be granted.
Carry Over of Vacation Days
All policies must clearly identify the employer's position on carry-over of accrued, but unused vacation/sick time. Some employers apply a "use-it-or-lose-it" rule to encourage employees to use their time off each year. Other employers pay employees for accrued but unused time off or allow them to carry over all or a part of accrued time off. State law requirements must be considered before an employer implements any forfeit policy, and terms of all policies must be identified. Employees should have a clear understanding of how their time off will be accounted.
Payment upon Termination
Employers will be well served by setting their rules on termination up front. State law will govern the actions an employer may take upon termination of employment. In some states, a vacation policy can be structured so that the time off is not actually earned until it is used, therefore it is not "compensation earned" for purposes of paying out to an employee upon termination.
Policy Revisions
Employers who revise existing Vacation Policies should make good on any time off previously accrued by employees. However, new policies can generally be implemented on a prospective basis, and employers may wish to consider how their existing time off arrangements meet company needs.
