'Tis The Season To Review Company Vacation Policies - Is Your Company's Vacation Policy In Tip-Top Shape?

by Akerman LLP - HR Defense

Being that we are in the midst of the holiday season, it seems quite appropriate to address employer vacation leave and pay policies. It may be a surprise that The Fair Labor Standards Act (FLSA) does not require payment for time not worked, such as vacations or holidays. Likewise, Florida, like most states, does not require employers to provide employees with either paid or unpaid holiday leave or to pay out accrued vacation time at the end of the year or upon termination of employment.  Holiday or vacation pay, if it exists, is optional, and is a benefit provided as part of an agreement between the employer and employee.  Therefore, employers are free to establish the vacation leave policy of their choosing as long as it stays within the boundaries of other labor and employment regulations (e.g. it cannot be applied in a discriminatory manner).  It is important to note, however, that such a policy should be clear and instructive.  

Below are a few specific questions to ask while reviewing your company's vacation policy.  If your policy does not provide an answer to any one of these questions, it may be time for you to consider adding or revising language in the policy so that these benefits may be implemented in a seamless manner without unnecessary confusion, stress and potential liability.

  • Who gets vacation time?  It is not unusual to see policies in which higher level executives, full-time employees and/or employees with more years of service are afforded more vacation days. However, an employer must decide in advance who will be included in the vacation policy.  Regardless of the employer's decision, it is important to make sure that similarly-situated employees are provided the same amount of vacation time, and the impact of the policy does not discriminate against members of a protected class. 
  • How much vacation time do employees get?  An employer may give employees vacation time based on an escalated method - one week off for the first year, two weeks off for the second year and three weeks off after five years of service.  On the other hand, an employer may give two weeks paid vacation for all employees regardless of years of service.  The amount of vacation time afforded employees should be laid out in detail in the policy.
  • Does Vacation Time Accrue?  If so, how and when does vacation time start to accrue?  Some employers provide vacation time, or "paid time off," that accrues on a bi-monthly or monthly basis. There could also be an accrual system in place based on the number of hours worked.  Additionally, vacation time can start to accrue immediately upon employment or it may begin after an employee has worked for the company for a prescribed period of time.  Make sure that the policy is very clear regarding how and when the vacation time accrues and any circumstances that may affect the accrual.    
  •  How is accrued vacation time paid?  For administrative ease, many employers choose to pay out accrued vacation leave at the employee’s current rate of pay.  However, other employers may choose to pay out vacation leave at the earned rate of pay (i.e. the rate of pay at the time the vacation time accrued).  The policy should detail how the employee will be paid.
  • What do employees do with unused vacation time? Employees may forfeit vacation time at the end of the year or may carry a balance of vacation days to the next year, with or without  a cap on the amount of time that can rollover.  If vacation days do not rollover, be sure to include a specific date on which any accrued vacation time will be forfeited.
  • Is approval required for employees to use vacation time? Most employers require that vacation requests be approved in advance.
  • By who, and how far in advance must employees obtain approval?  It is important that the policy detail the process for the submission and approval of vacation requests - Who must approve vacation requests? Is it a department head (e.g. someone in management who is not the employee's direct supervisor)? How far in advance must an employee request approval?  Be clear and concise on how requests are handled once they are received.  For example, are requests approved on a "first come-first serve" basis or are request forms processed in a random drawing based on years of service?  Understandably, employers cannot grant all employee vacation requests and still efficiently run a business.  
  • How can the vacation time be used?  Some policies describe vacation time in days, while others describe the time in hours.  Either way, a policy should include the minimum increment of time that can be used at once.  For example, a policy may not allow an employee to take less than 30 minutes vacation time at once.  Similarly, an employer may require vacation time to be taken in full-day intervals.
  • Are there blackout dates? It is advisable that a vacation policy reiterate that a company's needs take priority.  Therefore, if the business is seasonal, the vacation policy may require employees to schedule time off in non-peak months. Likewise, if there are certain days of the year on which your company requires more staff than usual because of a significant influx of business (e.g. Black Friday, Christmas Eve, Cyber Monday), it may be advisable to include these days as "blackout" dates in the policy.

Certainly there are enormous benefits to implementing a fair and solid vacation policy. Not only will such policies boost employee morale but they will also keep your company competitive in a diverse marketplace vying for the top employees.  The list of issues provided above is important to establishing a good policy, but is by no means exhaustive of the issues that may need to be addressed.  If you should have any questions or concerns regarding your specific vacation policies, please contact legal counsel for assistance.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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