Vacation is not a mandatory benefit and it’s up to the employer to determine whether or not this type of wage benefit is appropriate. If you decide that offering vacation benefits is right for your business, here are a few things to remember:
- Include a policy in your handbook: Have a very clear and detailed policy regarding time off – with or without pay – that is in writing and readily available to all employees through an employee handbook. Topics that need to be covered include which employees are eligible, when benefits can be earned, accrual rates and policies, process to request time off, and what happens to any unpaid benefit upon termination of employment.
- Include a cap on vacation hours earned. It may seem like it is not important when you hire your first employee, but as companies grow these benefits can become expensive and result in financial liabilities. Keep in mind that once vacation time is accrued by an employee it cannot be forfeited, even when there is a change in policy, so it’s important to do it early. For example, if employees could previously carry forward unused vacation time and the company decides to adopt a “use it or lose it” policy at the end of the current year, the company cannot impose the new policy on vacation time already earned. It must honor whatever policy was in place at the time the vacation was earned.
- Don’t include vacation hours when calculating overtime. Overtime is calculated using actual work hours only. Sick time, vacation pay and any other wage benefit where the employee doesn’t actually work are not considered. For example, an employee could work regular 40 hours and then get 8 extra hours of pay for a holiday and it would not count as overtime. The same goes for sick time and vacation pay.
- You can say NO to taking time off. It’s okay to deny vacation time – even if it is earned – when it is not the right time for your business. Offer the employee another option for taking time off. Work together to find a good time for both the business and the employee. You can also deny an employee time off even if they are not going to get paid for the time off. I run into this with small businesses – they think that because the employee is not going to get paid that they must allow the time off but that is not true. The employee is taking up a full time or part time employee “slot”” and they need to meet the basic obligations of employment – showing up!