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Does Vacation Time Have to Roll Over?

As the summer vacation season winds down, small business owners may want to remind their employees on how their companies deal with remaining vacation time.

One of the most common questions: Does unused vacation time roll over into the next year?

State and federal employee protections often control how an employer can craft her business' vacation policies. So depending on your situation and which state you're in, you may be required to have vacation time roll over.

Federal Law Does Not Require Paid Vacation

Although many employers allot their employees two to three weeks of paid vacation, there are actually no federal requirements for business owners to offer paid vacation at all.

The Federal Labor Standards Act only requires payment for time worked, and does not mandate that employers provide compensation for:

  • Sick time (although unpaid sick leave is covered under FMLA),
  • Vacation, or
  • Federal holidays.

Since federal law is silent on paid vacation time, an employer who chooses to allow her employees a certain amount of vacation time each year is not mandated by federal law to have those days roll over.

State Laws on Vacation Time

There is also no requirement under most state laws for a small business owner to provide any employee with paid time off. But if a business does offer paid vacation tome, there may be some regulations to follow.

Some states, like California, consider paid vacation benefits a form of wages which are earned as an employee works. These wages are then owed to an employee if they leave a company without taking those paid vacation days.

In states where vacation pay is considered a form of wages, an employer cannot have a "use it or lose it policy" which forces employees to use vacation time before a year ends or face losing that time in the next year. Doing so would essentially deny an employee earned wages.

However, in all states, an employer can choose to "pay out" an employee for unused vacation time at the end of the year, giving each employee her hourly rate for the remaining balance of her vacation hours. This policy ensures that all employees are compensated under state law and each begins the next year with no paid vacation time.

Make sure that your business' vacation accrual policy complies with the laws in your state by consulting with an experienced employment attorney in your area.

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