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Setting Vacation Time: Things to Keep in Mind



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We’ve all heard the saying “All work and no play makes Jack a dull boy,” and the truth behind it is real. Everyone needs a little time off from work, because without it, employees tend to become disillusioned, unproductive, and disengage from their work as we discussed in 10 Ways to Enhancing Employee Engagement. Though it is a key part of an employee benefits package, deciding how you want to create your vacation policy can be tedious and difficult. 

There are several rules and regulations that contribute to a vacation policy, and even these policies differ by state, as there are no Federal laws immediately on point. With all this in mind, building an appropriate vacation policy can be quite the challenge, even for experienced business owners. The following are a few key aspects that go into making a vacation policy to keep your employees happy, while also keeping them productive. 


One thing to keep in mind when setting up your vacation policy is the difference between accrued vacation and annual vacation. Annual or contracted vacations are a set number of days given to employees to use as they see fit. Usually, employees request specific vacation days off and wait until the employer approves the requested dates. If your company has peak production times or seasonal work, you may want to consider restricting or prohibiting vacation times during those parts of the year to maintain a high level of productivity. It is also advisable to require the employee to work for a certain amount of time (anywhere from 3-6 months) before allowing them to request vacation time. This prevents the employee from taking advantage of having a paid vacation and then leaving the job.

Accrued vacation is based on the number of hours an employee works during a specific pay period (normally by quarter) for the company. Typically, employees begin accruing vacation benefits the first day of work, and then they can begin using the accrued vacation days after working for a set period of time (similarly to annual vacation). 

Source: Chron


Before jumping into whether or not accrued vacation time must be paid out upon termination of an employee, it is advisable that you check up on your state or local laws, as regulations widely vary. Some states legally mandate that accrued vacation time be treated as wages and be paid immediately upon termination, and some states don't have any regulations regarding such. So it's best to check your state and local laws for guidance. 

If you work in a state that doesn't have any regulations regarding paying out vacation time upon termination, the employer is obligated to follow its own policies and agreements with the employee. To put it simply, if the vacation policy states that it will be paid out upon termination, then it must be. Choosing otherwise could result in some serious repercussions for you and your business.

However, as an employer, you can add provisions into the vacation policy stating that if an employee is terminated or doesn't give a two-week notice, then accrual payouts will not be paid. Another thing to consider is that an employer can not deduct vacation time for any other leave taken in accordance with employee rights. For example, if an employee takes two weeks off of work due to illness or a personal grievance, that time cannot be taken away from their vacation — the employee still retains what they have either been allotted or what they have accrued. Furthermore, if an employee takes a legally protected leave and then resigns, the employer cannot opt to deduct leave days from accrual at that point.