Vacation AccrualAccrual is simply the particular method by which vacation time is accumulated; in most states, employers may set accrual methods up however they wish. Many companies require employees to work a certain number of months before earning any vacation credits.
Following is one method (there are many) of determining accrued vacation during an employee's first year.
No vacation days are earned during the first 2 months of employment. After this 2-month period, 1 day of vacation is earned for each full month worked, up to a maximum of 10 days for that calendar year. More than 50 percent of a month may be counted as 1 month for these purposes. Before the completion of 6 months of service, only accrued vacation days may be taken. On January 1 of the following calendar year, each employee who has then completed 6 months of service will again earn 1 day per month up to 10 days. After January 1 following the completion of a full year of service, the following schedule applies:
Length of Service as of January 1 Days Accrued 1 through 4 years 10 days 5 through 10 years 15 days 11 years 16 days 12 years 17 days 13 years 18 days 14 years 19 days 15 years 20 days
In this way, the new employee effectively earns no vacation during the first 2 months of employment, and 1 day of vacation for each full month thereafter, up to a maximum of 10 days in the first year. After 5 years of employment (or whatever period of service is required), employees can then earn 1 1 / 2 days per month up to a maximum of 15 days.
Note: To avoid confusion, it is essential to have a cutoff day (e.g., June 30 or December 31) when vacation accrual for that year ceases.
Employers should decide and communicate in advance whether they will allow vacation days to be carried over, how many, and for how long. It is perfectly acceptable to have a different or more generous vacation policy for professionals, managers, or supervisors.
Some Vacation OptionsEmployers that incorporate vacation policies into a flexible benefits plan may allow workers to "sell" vacation days in exchange for other benefits or "buy" vacation days by giving up other benefits. For instance, an employee with a working spouse who has good medical coverage might give up some of his or her medical insurance in exchange for an extra week's vacation. Or an employee with small children might "sell" back some time in exchange for a child care subsidy. There are endless possible combinations, and employees like the freedom of choice. While a benefits program of this kind can be difficult to administer at first, if structured correctly, it may come at little additional cost to the employer. On the other hand, it is very important for employees to take vacation time and use it to rest and recover and not think about work; employers should encourage them to do so.
Some other common vacation practices include:
| · Granting employees an extra day's pay, or an extra day's credit, if a holiday falls during a vacation |
| · Substituting sick leave if employees suffer an extended illness during vacation |
Note: The IRS has ruled that employees in a particular company could transfer unused vacation pay to their 401(k) plans. However, the ruling applied only to the company that requested it, and very few companies qualify to implement such a method under 401(k) plan restrictions. So far, this is not a viable option for most employers.
Unpaid VacationSome large employers mandate that their employees take extra time off as vacation without pay in order to cut corporate costs without resorting to layoffs. Some employers require only a few days; some make their unpaid leave programs voluntary; and some ask employees if they are interested in taking the summer off--without pay, but with full benefits and a guaranteed return to their jobs. Another option is to work part time during the summer with half pay and full benefits.
Employers that wish to force leave must be sure that no policy prohibits the company from designating leave time and should have policies stating that employee leave must be taken at times convenient to the company.
Family and Medical Leave Act (FMLA) and Vacation Employers covered by the FMLA are permitted to require that employees
use accrued vacation time for FMLA leave. Employees must also be allowed to
substitute paid accrued vacation for unpaid FMLA leave, without restriction.
This also holds true for state leave programs.
Some employers are opting for Paid Time Off (PTO) programs, believing that such programs cut down on unscheduled absences. A PTO program combines days off, which would otherwise be set in fixed allotments (i.e., vacation, sick time, personal days, and holidays), into a bank or pool. Employees may take as many days as they need within the employer's cap or limit, for any reason. The concept of a specific number of sick days or vacation days is omitted; the employee does not have to make a choice, and the employer does not have to determine whether the choice is legitimate.
PTO leave banks may be fashioned in any number of ways. Some questions the employer should decide are:
| · What types of absences will be included? For example, will the absences include simply sick, vacation, and personal time, or will jury duty, educational time, or funeral leave be included? |
| · How many days will be available? |
| · What happens to unused leave at the end of the year? |
| · What about when an employee terminates with time remaining in the bank? |
Vacation and Termination Some state laws consider vacation time the equivalent of wages;
therefore, it must be paid at termination. In some states, court decisions
have said that if an employer offers paid vacation and the employee has earned
it by working through the accrual period, the time must be compensated at
termination. A number of states prohibit accrued vacation time from being
lost ("forfeited") for almost any reason. Some states do not require that
unused vacation be compensated at all. Some employers opt to compensate unused
vacation regardless of the law, or under certain specified circumstances.
BLR's Survey of Vacation PracticesCompanies in the Far West and Northeast/Middle Atlantic regions appear to have the most generous vacation policies, offering 1 to 3 weeks of vacation. This geographic trend is consistent for all levels of employees--exempt, nonexempt office, and nonexempt plant. The Far West, though, fell behind most other regions in the number of employers who offered a fourth or fifth week of vacation to their employees.
Standard PracticeAccording to BLR's latest nationwide survey of employee benefits, standard vacation practice is:
Two weeks. Employees receive 2 weeks of vacation after 1 year of work.
Three weeks. The majority of employers require employees to work for 5 full years to qualify for 3 weeks of vacation.
Four weeks. The majority of employers require 10 or more years of work to qualify for 4 weeks of vacation.
Five weeks. About one-third of survey respondents offer a fifth week, but more than half of them make eligibility conditional on 20 or more years' service.
AddressBusiness & Legal Reports, Inc. offers several model vacation policies in The Personnel Manager's Encyclopedia of Prewritten Personnel Policies.
