United States: Not Quite Fun In The Sun: What Happens To Accrued Vacation Leave When The Employment Relationship Ends (Part 2)

Last Updated: December 17 2015
Article by Emily M. Tortora

Part Two: State-Specific Provisions and Employer Policies for Vacation Payout at the Conclusion of Employment 

In states that allow "use-it-or-lose-it" vacation leave policies when employment ends, the details of your policy are key. This second installment of the two-part series on vacation leave payout explores the state-specific provisions for leave forfeiture, and the importance of an explicit vacation leave policy.

Remember the three departing employees from our first post, whom you employed in three different states subject to a "use-it-or-lose-it" policy that you thought applied across the board? Bob has left for greener pastures, Carla has been forced to hit the bricks for insubordinate behavior, and Dan is leaving on a jet plane to Fiji with his lottery jackpot, without giving notice. What will happen to their unused but accrued leave? Let's start with the big picture. In some states, you must pay employees for unused paid vacation leave at the end of employment if you don't have a written policy that says otherwise. In New York, North Carolina, and Ohio, for example, employers must pay their employees for accrued paid vacation leave if their policies are silent on the issue. But if your policy says "use it or lose it" at the end of employment, you don't need to pay. States like these are a trap for the unwary. If you employ Bob in Ohio, and you don't have a policy specifying what will happen to the five days he has accrued prior to his resignation, you must pay him for those days.

States like Michigan and Maryland are more explicit. In Maryland, you must pay for accrued vacation leave unless you provide written notice to employees at the time of hiring that you do not pay for unused days. So if Carla does not receive written notice regarding leave forfeiture in Maryland, you must pay for the two days she accrued before you fired her. In Michigan, you must pay for accrued but unused vacation leave unless your employees agree in writing that you will not pay. This contrasts with states like Hawaii, where silence on the issue of vacation leave payout does not compel you to pay for unused but accrued days.

Many states permit employer policies that limit accrued vacation payouts in particular circumstances. North Carolina and some other states will enforce a written policy that says you will pay for the accrued vacation leave of only those employees who have provided some minimum period of notice before departure. So if you employ Dan in North Carolina and require two weeks' notice in your payout policy, when Dan walks out on the spot with his winning lottery ticket, you need not pay him for his three days of unused vacation. (Never mind that, armed with enough money to buy a small island in the South Pacific, Dan is unlikely to be fazed by losing three days of pay.)

Nuances abound in this and the preceding post, which is available here. Employers should be aware that there may be no one-size-fits-all approach to leave payout procedures if they do business in more than one state. If you do, you should consult employment counsel to craft policies that best reflect your organization's objectives while satisfying the various state laws. These policies should be explicit about the ways you will treat accrued paid vacation leave when employment ends, both to avoid running afoul of provisions in jurisdictions where silence creates a legal obligation, and to provide clarity to employees on this issue.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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