With summer just around the corner, now is a great time to review existing vacation leave policies. Here are three things employers need to know about vacation leave:
- Vacation leave is not required under federal law. While vacation days are a common employer-provided benefit, federal law generally does not require either time off or pay for vacation. However, if an employer decides to offer vacation leave to its employees, the policy should be applied fairly and uniformly.
- State laws may apply to pay in lieu of earned vacation. In addition to allowing employees annual time off for vacation, employers also commonly provide pay in lieu of vacation time that employees have earned. A number of states require employers to pay employees for unused accrued vacation upon termination. Contact your state labor department for guidance on your state’s laws regarding vacation pay.
- Vacation policies should be in writing and communicated to employees. It is very important for employers to develop a clear, written policy regarding paid vacation leave and follow it exactly. Non-written leave policies can lead to inconsistency and complaints from confused employees, as well as claims of discrimination. At a minimum, the policy should include:
- The categories of employees who are eligible to accrue and use paid vacation leave;
- The amount of paid vacation leave provided each year and how leave is earned;
- Whether paid vacation leave can be carried over from year to year; and
- Whether employees will be paid for unused vacation leave upon termination of employment (in compliance with any state law requirements).
Check out our section on Leave and Time Off to learn more about federal and state-mandated leave requirements, as well as common types of employer-provided voluntary time off.
Please Note: The information and materials herein are provided for general information purposes only and are not intended to constitute legal or other advice or opinions on any specific matters and are not intended to replace the advice of a qualified attorney, plan provider or other professional advisor. This information has been taken from sources which we believe to be reliable, but there is no guarantee as to its accuracy. In accordance with IRS Circular 230, this communication is not intended or written to be used, and cannot be used as or considered a ‘covered opinion’ or other written tax advice and should not be relied upon for any purpose other than its intended purpose.
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