Vacation leave is paid time off from work provided on an annual basis and normally taken in blocks of days or weeks. While employers aren’t typically required to provide employees with vacation leave, most employers offer at least some paid time off to employees. In fact, among private-sector employers with one to 49 employees, 70 percent of employees have access to this benefit, according to the Bureau of Labor Statistics (BLS). Here are some considerations for offering vacation leave.
Why offer vacation leave?
Pros
Offering paid vacations can help you demonstrate your commitment to your workforce, attract and retain employees, and remain competitive in the marketplace. Paid vacations can also boost productivity and help reduce unscheduled absences by giving employees the ability to schedule their time off.
Cons
Employers often cite cost as a significant barrier to providing paid vacations. The average cost of providing paid vacations last year was about 3.8 percent of employees’ total compensation, according to the BLS. Employers should factor the cost of vacations, and other benefits, when establishing wages and salaries. Besides cost, there is also the challenge of tracking leave and maintaining adequate staffing levels.
How to offer vacation leave?
Vacation versus PTO
Some employers bundle leave into a single Paid Time Off (PTO) bank, rather than have separate allotments for sick, vacation, and other personal leave. With a PTO program, employees are typically able to use their accrued time off for any reason. This can make it easier to track time off. Additionally, a PTO plan can reduce unscheduled absences since employees have more flexibility to schedule their time off in advance, rather than calling in "sick" after they have used all of their vacation leave.
Eligibility
Vacation leave commonly is granted to employees only after they meet specified service requirements (e.g., after six months of service). Even if you offer paid vacations to full-time employees, you are generally under no obligation to offer vacation to part-time employees. In fact, only about 40 percent of all part-time employees in the private sector have access to vacation leave, according to the BLS. Employers that offer vacation to part-time employees usually do so on a pro rata basis.
Accrual versus frontloading
Employers can allow employees to accrue vacation over the course of the year or frontload vacation (grant all leave at the beginning of the year). While frontloading might be easier to administer, the accrual method can reduce costs if the employee leaves the company during the year.
For example, an employee who receives two weeks of frontloaded vacation on January 1st and then quits on January 2nd may be entitled to a payout for the unused time (see carryover and payout below). Accruals require the employee to earn the time each pay period.
Pay issues
Carryover and payout
Some states explicitly prohibit policies that force employees to forfeit accrued, unused vacation time (also known as use-it-or-lose-it policies). In these cases, employers must generally allow employees to carry over accrued but unused vacation time/PTO from year to year, or pay employees for the unused time at the end of the year.
In some states, a reasonable cap on accruals may be permitted and employers would be required to pay out any accrued, unused vacation at the time of separation. In other states, employers are allowed to have use-it-or-lose-it policies only if the company has a written policy communicating the rule to employees. Check the rules in your state for details.
Vacations and overtime
Because paid vacation leave isn’t considered "hours worked," employers do not need to include it when determining whether overtime is due under federal law. For example, an employee who works 40 hours and then takes one vacation day during the workweek wouldn’t be entitled to overtime pay under federal law.
Business considerations
How much time
The number of vacation days granted each year may vary by length of service. As of last year, the average number of vacation days that private-industry workers received after one year of service was 11, according to the BLS. After five years of service, the average number of vacation days is 15 among private-industry workers. A small number of employers offer unlimited vacation time, trusting that employees will use their professional judgment when deciding when and how much time off to take. Structure vacation programs consistent with your business needs.
Encouraging use
If your business recognizes the benefits of employees taking scheduled time away from work, make sure supervisors encourage and allow employees to take earned time off. You can also adopt rules or practices that encourage employees to use their vacation time. For example, some employers put a reasonable cap on how much vacation an employee can accrue before they have to use it. In this case, employees have to "use" some of their time in order to earn any additional time. In states that permit use-it-or-lose-it policies, employers may encourage use by limiting the number of days that can be carried over into the next year.
Maintaining adequate staffing
You generally have the right to control when and how much vacation employees take at any particular time. In your policy, clearly communicate that vacations will be granted based on scheduling needs and may be restricted if necessary. Consider planning for peak periods by establishing an early deadline for submitting vacation requests. Some employers have block-out periods during which vacations are completely off limits or other periods when time off is restricted. Whatever strategy you choose, give supervisors guidance on handling time off requests and hold them accountable for ensuring adequate staffing levels.
States and local jurisdictions with laws on paid leave for any reason
While no federal, state or local law requires employers to offer vacation leave specifically, a handful of states and local jurisdictions have enacted laws that entitle employees to paid time off for any reason. Eligible employees who work in these locations may use this paid leave for vacations, illnesses, or any other situation they want.
These laws typically have their own rules for the amount of leave that must be provided, employee eligibility, employee notice, frontloading, and carryover. These states and local jurisdictions include those in the following table. Covered employers should ensure they comply with the requirements of the applicable law.
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States |
Employers who must provide paid leave that can be used for any reason |
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Illinois
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Maine
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Nevada
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Conclusion
If you offer your employees vacation leave, put your policy in writing and consider addressing the topics discussed above.