Paid vacation is one of the most common employee benefits. Providing paid vacation, and developing a culture that encourages employees to use their time, can help with employee attraction and retention as well as productivity, particularly in these unprecedented times. Here are answers to frequently asked questions about vacation policies, including best practices to consider in light of COVID-19.
Q: Are employers required to offer paid vacation to employees?
A: Generally, employers aren't required to provide paid vacation to employees. However, some jurisdictions have enacted laws requiring employers to provide paid leave that employees can use for any purpose, including vacation. For example, effective January 1, 2021, Maine will require employers with more than 10 employees to provide paid time off that can be used for any reason.
Q: Do most employers offer paid vacation to employees?
A: More than 90 percent of full-time employees receive this benefit, according to the Bureau of Labor Statistics (BLS).
Q: Is it an expensive benefit?
A: The BLS says that, in 2019, the average cost of providing paid vacation for small employers was 84 cents per hour worked (or 3 percent of total compensation).
Q: What are some reasons for and against offering paid vacation?
A: Pros. Vacation time gives employees time away from work to recharge, spend time with family and friends, and take care of personal responsibilities so that they can be more productive when they return to work. Offering paid vacation can help you demonstrate your commitment to your workforce, attract and retain employees, and remain competitive in the marketplace. Paid vacations can also reduce unscheduled absences by giving employees the ability to schedule their time off. Paid vacation can also help prevent burnout, which is an especially important factor to consider for employees who have worked through the COVID-19 pandemic.
Cons. Besides cost, there is the challenge of tracking leave and maintaining adequate staffing levels.
Q: How much vacation should I offer?
A: Since vacation isn't generally a required benefit, employers typically can determine how much time off they provide. According to the BLS, the average number of vacation days employers give to employees with one year of service is 10 days, increasing to 14 days for employees with five years of service. 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.
Q: What is the difference between a vacation policy and a paid time off (PTO) policy?
A: Instead of having separate policies for vacation, sick, and other types of leave, many employers offer a single PTO policy under which employees can use accrued time off for any purpose. For example, an employer may offer 14 days of PTO per year that employees can use for any reason. Under this policy, one employee could use 10 days for a vacation, another three days when they get sick later in the year, and the remaining time off to care for their child, whose school was closed due to a snowstorm. Other employees may use the time differently to meet their specific needs and circumstances.
Q: How are vacation policies being affected by COVID-19?
A: Many employers are finding that employees are using less vacation than they usually do. There are various factors contributing to this, but one of them is that state and local restrictions have made it more difficult for employees to spend their time off as they typically would.
Q: Is there an impact on employers when employees suddenly use less vacation?
A: Employees using less vacation than usual can make it harder for employers to plan and budget, since there is a pent-up supply and employers don't know when demand will return. In some states, ballooning vacation balances could also become a financial liability for employers at year end or when employment ends (see question about use-it-or-lose-it policies below). Additionally, if employees aren't taking enough time off to recharge, they may become less productive.
Q: Can I encourage employees to use more vacation? If I do, how can I ensure adequate staffing?
A: Yes, employers may encourage employees to use more vacation. If you would like to do so for budget and planning reasons or to prevent burnout, it may be helpful to remind employees that you support them using their vacation time and let them know that leaders will be taking vacation as well. It may also be helpful to show the difference in what the average employee takes in vacation by this point in a typical year and what the average employee has actually taken in 2020.
You generally still have the right to control when and how much vacation employees take at any particular time. So, clearly communicate that vacations will be granted based on scheduling needs. Consider planning for peak periods by establishing an early deadline for submitting vacation requests. Whatever strategy you choose, give supervisors guidance on handling time off requests and hold them accountable for ensuring adequate staffing levels.
Q: To encourage employees to use more vacation, can I adopt a use-it-or-lose-it vacation policy?
A: Some states explicitly prohibit policies that force employees to forfeit accrued, unused vacation (also known as use-it-or-lose-it policies). In these cases, employers must generally allow employees to carry over accrued but unused vacation from year to year, or pay employees for the unused time at the end of the year. Similarly, in these states, employers are required to pay out any accrued, unused vacation at the time of separation.
States generally handle unused vacation in one of three ways:
- Expressly prohibit use-it-or-lose-it policies. These states require carryover from year to year and payout at separation;
- Permit use-it-or-lose-it policies but only if the employer has a written policy that explicitly states it will not carry over accrued, unused vacation to the following year and won't pay employees for accrued, unused time at separation; or
- Don't require employers to carry over accrued, unused vacation to the following year or pay employees for unused time at separation unless they have a policy that says otherwise.
Note: In some of the states that prohibit use-it-or-lose-it policies, a reasonable cap on accruals may be permitted. In such cases, employees have to "use" some of their time in order to earn any additional time.
Q: We operate in a state that allows use-it-or-lose it vacation policies, but given the unprecedented nature of the COVID-19 situation, I was thinking of relaxing the rules a bit this year. For example, we typically only allow employees to carryover 40 hours of unused vacation. I would like to expand it to 60 hours for this year. Is this allowed?
A: Employers generally have the right to amend vacation policies for future use provided they remain in compliance with applicable state law. Employers should give plenty of advance notice, be consistent in applying the amended policy, and be clear about what is changing, how employees benefit, and how long the changes will remain in effect.
Q: When employees use vacation time, can I prohibit them from traveling to locations where there is a higher incidence of COVID-19?
A: Given the numerous travel bans in place due to COVID-19, employers should first advise employees to check the CDC's Traveler's Health Notices for the latest guidance on where travel is restricted. Employers should also advise employees that they should take precautions while traveling, follow all federal, state, and local orders and guidelines, and that they may be required by state or local rules to self-quarantine if they travel to or from certain locations.
If an employee has traveled or intends to travel and the CDC or state or local authorities recommend that they self-quarantine as a result, you may ask about their travel plans, absent a claim that the employee has a recognized privacy interest in their travel, and take steps to reduce workplace exposure. If you learn that an employee has traveled to a restricted location, reinforce CDC and all applicable guidelines regarding self-quarantine and remind employees to avoid the workplace if they develop any COVID-19 symptoms.
Keep in mind that employees who travel may have protections from adverse action. For instance, some states prohibit employers from taking adverse action against an employee for engaging in lawful off-duty conduct, such as traveling to another country or state where travel is allowed. The time off may also be protected under federal, state, and local laws entitling employees to job-protected leave. For instance, an employee taking time off to take care of a family member with a serious health condition may be protected under the federal Family and Medical Leave Act, similar state laws, and/or state and local paid sick leave laws.
When drafting, implementing, and enforcing your vacation policy, carefully review applicable laws and encourage employees to use the time that they accrue.