How is Vacation Pay Earned and When can You Use it?

Vacation pay is an optional employee benefit which is chosen by the employer. However, if the employer chooses to offer vacation pay, they must comply with certain laws and regulations. Vacation pay is technically considered a form of wages, since it is earned based on the number of hours worked. Therefore, a contract between the employer and employees is created which bounds the employer to certain laws. Although the employer can set a cap on the amount of unused vacation time, instigating a “use-it-or-lose-it” policy is not allowed.

Employers must allow employees to use earned vacation, or they can compensate employees with vacation pay for those hours not used. Of course, employers are permitted to put a limit on the amount of vacation time used at any one point of time. When employers offer vacation pay instead of actual time off in order to prevent vacation time from being carried over from year to year, all terms agreed upon must be followed.

Upon termination or voluntary departure of an employee, the employer is required to compensate him or her for all unused vacation pay due to the fact that vacation pay is considered a form of wages. Even if the employee was not yet eligible to use that vacation time, he or she must still be paid for all vacation pay earned up to that point. For example, employees may start earning vacation time immediately after the date of hire, but be required to work for a year before using any vacation. Still, if the employee is terminated or quits after six months, the employer must compensate him of her for all vacation pay earned within those first six months.

Employee Vacation Benefits

Are you curious about your rights to your vacation time? Do you feel you may have unjustly lost earned benefits? Here’s a quick blurb to answer some questions…

The rights to employee vacation are acquired as services are performed by the employee; therefore, a portion of the annual vacation is earned after each day of work. Some companies attempt to implement a "use-it-or-lose-it" policy, where employees lose earned employee vacation benefits that are not used by a specific time. Fortunately for employees, this is prohibited.

Many companies have found a legal substitute, which is a cap on the amount of employee vacation time accrued, in which vacation time in excess of the cap is eliminated. All other accumulated but unused employee vacation time must be paid out at the final rate of pay at the time of termination, even if the employee was not yet eligible to take the vacation time.

Use it or Lose It

Businesses may place a cap on the total amount of vacation time you earn, bummer! However, businesses are generally not allowed to have a "use it or lose it policy." This means that if you don't use your vacation time in a certain year, you may still be entitled to keep it in certain situations.

Click on this link to learn more: Vacation Time Information