Vacation Policy Checklist

Your Vacation Policy Checklist

The warmer months are a popular time for employees to take vacation. While managing vacation requests can be a challenge, an effective and well communicated vacation policy can help. Here's a checklist to help you review your policy.

Is it clear who is eligible?

Be clear about who is eligible to accrue and take vacation under the policy, such as full-time-employees only, or both full-time and part-time employees. Is there a waiting period before new employees may accrue and use vacation? Does the waiting period make sense for your business and what is its impact on morale and engagement?

How much time are employees entitled to take?

Since vacation time is a voluntary benefit, you can provide whatever amount makes sense for your business. Typically, vacation time is based on length of service. For example, an employer may grant employees 10 days of vacation if they have less than five years of service and 15 days if they have more. For part-time employees, many employers will pro-rate the amount of vacation time.

Is vacation accrued over time?

With the accrual method, employees earn a portion of their vacation each pay period (for example, if an employee has 10 days a year, they earn 0.19 days per week). Another option is to provide employees with their vacation allotment in one or more lump sums (such as, all of their vacation on January 1 or half their vacation on January 1 and the other half on July 1). The lump-sum method is generally easier to administer but can be more costly if the employee resigns or is terminated during the year.

Can employees use vacation time before it is earned?

If you allow employees to use vacation before it's earned, apply the practice consistently and establish specific rules (such as, employees must receive written authorization from their supervisor and can use a maximum of two days of vacation in advance of earning it).

How much notice must employees provide?

Employers typically request reasonable advance notice for vacation time, such as one week's notice for short vacations (one or two days). Employers often require more notice for longer vacations (such as one month's notice for vacations lasting three or more days).

How do employees request time off?

Let employees know how they can request vacation time (directly through their supervisor, an online system, etc.) and to whom they can go with questions about your vacation policy. It is a best practice to get vacation requests in writing.

Do you allow carryover?

Your policy should address whether and to what extent employees can carryover unused vacation time to the following year. Some states explicitly prohibit policies that force employees to forfeit unused vacation time (also known as use-it-or-lose-it policies). In these cases, employers must generally allow employees to carry over all accrued but unused vacation time from year to year, or pay employees for the unused time at the end of the year. In some cases, a reasonable cap on accruals may be permitted (once the employee reaches the cap, they will stop accruing vacation time until they use a portion of their accrued time).

In what increments can vacation time be used?

Employers have the option of setting minimum and maximum increments for using vacation. This can help make it easier to administer your policy and ensure adequate staffing levels. For example, some employers will set a minimum increment of a half-day for vacation and limit vacations to no more than one week at a time outside of extraordinary circumstances.

How do you handle time off during peak periods?

Many employers plan for peak periods by establishing an early deadline for submitting vacation requests. Some have blackout periods during which vacations are completely off limits or brownout periods when vacations are restricted (such as, no more than two days at any one time). Even if you don't have a formal strategy for busy periods, it's a good idea to state that vacations will be granted based on scheduling needs and may be restricted if necessary.

Does your policy address payout?

Address how unused vacation time will be handled upon termination of employment and be sure to comply with state law. While some states do not have payout requirements, others handle pay for unused vacation in one of the following ways:

Employers must pay employees for accrued, unused vacation at the time of separation; orEmployers can exclude unused vacation from final pay only if they have a written policy that explicitly states that employees will not be paid for any accrued, unused time upon separation.

Do you encourage the use of vacation time?

Vacation 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. Consider including a statement that encourages employees to use the time they've earned.

Have you considered whether vacation will be provided under a single paid time off (PTO) policy?

Rather than having a separate policy for each type of leave, a PTO policy bundles various types of leave, such as vacation, sick, and personal leave, into a single bank that employees can use for any purpose. A PTO policy can make it easier to administer leave because you don't have to track the precise reason employees take time off (although if you're bundling sick leave, remember any recordkeeping requirements). A single PTO policy can also reduce unscheduled absences and provide greater flexibility for employers subject to multiple state or local paid sick leave requirements. Note: If you use your PTO policy to meet sick leave requirements, along with your vacation requirements, your state may require that you pay out unused sick time with all unused PTO at the time of separation, even if your sick leave law alone wouldn't require payout. This could mean you would face additional costs that you would not otherwise incur had you kept your vacation and sick leave policies separate.