Leave Policies and the Law: Creating a Vacation Time Policy

June 9, 2016 | posted by Abacus Payroll

create a nj payroll vacation policy for small business employees

Aloha PTO! July is the most popular month for American workers to request vacation days off from work. Be prepared with a thorough and legal vacation time policy.

While it’s not federally-mandated, vacation time is a huge incentive for most employees. Without one, you run the risk of losing potential hires to other companies with better vacation time policies. Between the higher employee morale and general positivity instilled by a vacation time plan, your business as a whole stands to gain tremendously from implementing such a policy.

If you don’t have a vacation time policy for your employees, it might be time to start working on one.

Vacation Time 101

If you’re still questioning whether to provide vacation time, look to the Department of Labor for your answer: more than 90 percent of full-time employees receive vacation time, which indicates that the majority of employers provide their employees with this luxury.

The good news is that, as an employer, you have wiggle room when it comes to vacation time policies. The federal strictures regarding vacation time are virtually nonexistent, and while state laws differ and come in various degrees of specificity, the general overview of vacation time law is fairly straightforward. Legally, make sure not to do any of the following things:

Illegally discriminate against your employees
Refuse to compensate employees for contractually-guaranteed vacation time
Punish or otherwise unfairly treat employees for choosing to use their vacation time

Fortunately, that’s a short list of potential offenses. If you simply resolve to treat your employees fairly on basic principle, your chances of accidentally committing a vacation time-related crime are close to zero.

Verifying State Legislature

Although these guidelines are relatively simple, you should absolutely check your state’s legislature before committing to a vacation time policy; some states ban certain rules, like the “use it or lose it” approach wherein employees must use up their accrued vacation time by a deadline or they lose their accumulated time. Other states regard vacation time as equivalent to cash value, which means that you must compensate employees accordingly upon termination or resignation.

Some states also have laws regarding your accrual cap—another way of limiting your employees’ maximum vacation time—so if you plan on imposing a hard limit on how much vacation time an employee can build up before they have to use it, make sure you check your state’s policy first.

A Vacation Time Policy That Works For You

Most companies reward loyal employees with additional vacation days based on their years of service. For instance, according to the Bureau of Labor Statistics, the average number of paid vacation days offered to employees with one year of service is 10, while the average days for employees exceeding five years of service is 14. However, if you want to offer unlimited vacation days to your staff, there’s no law stopping you or any of today’s more progressive companies from including that trending benefit in their compensation and benefit packages.

From your side of the operation, you’ll want to introduce clauses dictating how much advance notice an employee must give before taking a vacation, who can receive vacation time in the first place—only 34 percent of part-time employees get vacation time, while over 90 percent of full-time employees receive it—and during what times of the year vacation goes by the wayside (e.g., your busiest times). Make sure your employees have access to this information from the beginning of your policy so they don’t feel cheated later. Have you considered including your policy in your Employee Handbook?

Managing Vacation Time Requests

Another factor that you will have to consider ahead of time is how your HR team will address overlapping requests from multiple employees. Have a plan in place for whether your requests are honored on a first come, first served basis, or if it’s based on seniority. Some employers require all of the employees to submit their requests for the full year by a certain date to accommodate such situations.

Also know that employers are permitted to designate vacation time based on the needs of the organization. Depending on your business, this could mean you have the option to require accrued time to be used primarily in your slower months. For instance, if your business is seasonal, your policy may include stipulations around particularly busy times. This could include accountants during tax time, your summer help during June/July/August’s summer camp season, retail workers on Black Friday and the ensuing weeks, or even a smaller period such as restaurants around Valentine’s Day.

Government-protected Leave

Of course, you will have to make some allowances for government-related employee absences. Some states require you to compensate employees for voting on company time, while it’s commonly accepted across the board that you can’t discipline an employee for missing work due to jury duty. Similarly, any member of the military called into service merits protection from recompense under federal law.

Whatever requisites your company decides on for its vacation time policy, make sure it is clearly communicated to your staff members and enforced accordingly.

Need more HR guidance?

Abacus Payroll’s HR Online Help Center has sample vacation policy templates to help you in the beginning steps of creating a policy tailored to your business. The Help Center also has guides and a law library to help you verify that you’re within all FLSA and DOL guidelines with your policy. If you don’t have an HR department and are trying to stay on top of legislation and compliance yourself, consider outsourcing your HR functions for a nominal fee.

Learn More About Our HR Help Center

If you’re creating your first vacation time policy and you don’t know where to begin, call Abacus Payroll today at (856) 667-6225 for more information!

Note: This article is presented for informational purposes only. Refer to your state laws and HR contact for how this pertains to your individual situation.

About the Author: Abacus Payroll

Abacus Payroll, Inc. is a leading provider of payroll solutions for businesses of all sizes. Whether yours is a family-owned small business or a national corporation, we provide payroll, tax and other financial services on time and at an affordable price. Unlike other payroll providers, Abacus Payroll will assign your very own payroll specialist who will understand your payroll needs inside and out. So no more speaking to a different person each time, no more sitting on hold for hours and most importantly no more missed deadlines! Contact us today to see how we can help your business. You can count on us.