What Happens to My Unused Vacation Days?

Employees and managers across the country are facing a year-end reckoning over unused paid time off. Labor laws governing sick leave and vacation time can vary by state, and even by city or county. Most states allow “use-it-or-lose-it” policies, under which employees forfeit any vacation days left unused at the end of the year. A handful of states, however, apply limits to such policies or forbid them outright. Make sure your company policies comply with local labor laws.

There’s still time to make changes for this year, and many businesses are re-evaluating their PTO policies given the pandemic upheaval. Your company may be willing to consider individual accommodations to the regular policy, a companywide temporary policy change or some other solution, given the extraordinary circumstances of Covid-19.

The details

There is a legal distinction between sick days and vacation days, says Wayne Outten, chair of employment-law firm Outten & Golden in New York. “There is no federal law that requires vacation pay, so it’s important to understand the laws of the state you’re in,” he says. Employees concerned about unused vacation days should start by looking at their state and local labor laws and reading up on existing company policy.

Check the fine print. “This is peak ‘handbook season,’ the time of year employers should be taking a look at their policies and boosting them up for 2021,” says Deidra Nguyen, a San Diego-based employment lawyer with Littler Mendelson, a law firm that specializes in management representation.

With so many employees switching to remote work this year, employers should take note of the laws in the place the work is being done, she says, regardless of where the company’s office or headquarters is.

Some policies contain language that may be open to interpretation, she says. For instance, some jurisdictions allow forfeiture of accrued time off, as long as the employee had “a reasonable opportunity” to take vacation during the year but failed to do so.

At what point do travel restrictions, infection risk, remote-learning and mandatory quarantines negate reasonable opportunity? “When someone says I canceled my vacation time because of a global pandemic, I would tread lightly there,” Ms. Nguyen says. “Think about how a jury would look at it.”

Most clients she’s heard from recently are considering one-time reprieves for 2020-21, rather than permanent policy changes, she says.

For instance, a company with a use-it-or-lose-it policy may allow some rollover of vacation days into the next year. Businesses that typically allow one week of rollover are considering expanding that to two weeks. Others that normally require rollover days be used in the first quarter are extending the period through the second, she says.

Employees hoping for payouts for unused vacation days may be disappointed. Some jurisdictions limit such conversions, and year-end cash outlays might not fit into a company’s financial picture.

“It comes down to shades of generosity,” Ms. Nguyen says. “Realistically, do we think employees are going to have the full and fair opportunity to use this vacation in Q1, or could it take longer? There’s a lot of crystal-balling.”

For managers, the key is to make sure the changes are prospective, not retroactive, she says. “You don’t want to pull the rug out from under people,” she says. “Communication is key. Give fair notice of what they can expect and the reason the company is making the changes.”