Paid Vacation Rules

Paid vacation is one of the most common employee benefits offered by employers. Employers are in control when determining home many days of vacation to offer, who can take vacation, how paid vacation days accrues, and when vacation days can be used – so long as they adhere to state regulations. While there are few laws governing how paid vacation is handled, there are some… and it varies by state.¬†However, when it comes to paid time off, or PTO, you can pay your employees in cash when that time is taken. Like all forms of cash compensation from an employer, those wages are taxable for the employee (and deductible for you) upon payment. It may seem complicated at first, but here are some basic tips and information to get you and your team started on a great PTO plan.

Paid Vacation – The Basics

If you’re trying to determine what kind of PTO to offer, or if your current system is equitable and attractive, take a look at these common policies below:

  • You can prohibit workers from taking vacation during busy seasons.
  • You can require advance notice, so you don’t have too many employees out at the same time.
  • You can tell workers you’d like them to schedule vacations well in advance.
  • You may limit how much vacation employees can take all at once.
  • You may require that new employees not take vacation time in their first three to six months on the job.

To determine which employees get paid vacation and how much of it they get, the basic rule of thumb is to find out the industry standards and cross-reference them with employee expectations. When it comes to deciding who gets time off, there are no laws that dictate you may only grant full-time employees vacation, so you are free to offer PTO at your discretion… including to certain part-time employees and not to others. In fact, according to the Bureau of Labor Statistics (BLS), only about a third of part-time workers were offered paid vacation in 2015.

Your firm is equally able to adopt personalized or custom schedules for vacation accrual at your discretion. Common accrual methods are one vacation day per month, or per number of hours worked. Also common is a
“waiting period” before new hires start accruing paid vacation days.

Today’s workforce increasingly values striking a healthy work-life balance, and in turn the companies they work for are more proactive in asking employees to use their vacation time as desired. However, not everyone needs that many days off, and you should know that in some states implementing a “use it or lose it” policy with PTO is illegal. In such states, vacation time is considered earned wages – and as such, you must cash out the employee when they are no longer able to take those days (at the end of the year or in case of termination). Taking away those days without recompense is seen as illegal wage theft.

Additionally, states usually allow firms to place reasonable caps on vacation accrual, thus stopping employees from building up more and more PTO. IE, you can opt to pay the employee out for PTO days rather than have them take 2-3 months off at once. It varies state to state what ratio is acceptable, and you will need to observe your state’s labor regulations.

So, for the most part, it’s up to you!

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Paid vacation and PTO are great tools to attract and retain talent. You can even use them at the salary negotiation table as a counteroffer to increased cash demands if the money is not in the budget. The two most important things to know is the norms for PTO in your industry, and the laws and regulations in your state. Stay within those boundaries, and you’ll be all set!

Our Employer on the GO software can easily and automatically manage your PTO accrual policy. Our employee self-service software allows your employees to request time off which seamlessly syncs so you can say goodbye to manual tracking on a spreadsheet. If you’re interested in working with us, we’d love to talk – and offer an instant, free payroll quote so you can see how competitive our rates are.

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