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Ask the Hotline | Vacation Rules

May 4, 2018
As the office manager I often receive questions from managers about the requirements under the law for vacation time. Are there any laws that directly affect the vacation time benefit our company provides? Also, is there a summary of information on the issue available? 
Summertime and vacation time often go hand and hand. While there isn’t a single summary document on the requirements under the law, we can provide you with some key provisions, along with some general guidance on the matter. 
Massachusetts employers are generally free to establish and enforce any vacation policy they choose. Companies may set eligibility criteria (years of service, full-time/part-time, other) to qualify for vacation time.
Employers may allow all or some of an employee’s vacation time to carry over into a new year or require the employee to “use it or lose it” in a set time (typically one year). An employer may issue vacation time in a lump sum at the start of the year or require employees to accrue during the year. Employers also may choose to allow the use of time prior to being earned. 
Companies may create a benefit called Paid Time Off (PTO) that brings together vacation, sick and personal (if offered) time in one package from which an employee may draw throughout the year. The earned sick time law allows an employer to offer sick time and vacation time as one benefit, as long as the time may be used for all of the permitted sick-time reasons. 
The key reference to vacation law for private employers is the wage and hour law (chapter 149, sec 148), which states:
  • ''wages'' shall include any holiday or vacation payments due an employee under an oral or written agreement. 
Any earned or accrued but unused vacation time must be paid to an employee upon termination of employment. The one tricky aspect of adopting a PTO policy is that if an employee leaves with time in the PTO bank and the employer does not track sick and personal time separately, it will have to pay out the full unused PTO allotment as accrued but unused vacation time. 
If an employee is fired, the money must be paid at the time of separation. If the employee voluntarily leaves, it must be paid on the next pay day. 
Other Vacation Pay Issues
  • Unless the employer elects to do so voluntarily or by contract, vacation and paid time off hours do not count as time worked for purposes of calculating overtime. This applies to holidays and paid sick time as well. 
  • If a nonexempt employee works during his/her vacation the employee must be paid for the time worked. 
  • An employer may offset an employee’s final wages against any advancement of used and unearned vacation time provided the employer has proof of an undisputed loan or wage advance from the employee to the employee in writing. To strengthen its case for taking this action, a vacation request form should include a written statement informing the employee of its policy.  
  • Employers may require employees to use vacation during slow periods (e.g. shutdowns) or if the workplace is closed for bad weather. The U.S. Department of Labor has stated that “since employers are not required…to provide any vacation time to employees, there is no prohibition on an employer giving vacation time and later requiring that such vacation time be taken on a specific day(s)”.
  • An employer may require an exempt employee to use accrued vacation time to cover a partial- day absence as well. 
  • Employers may charge employees for vacation time on a partial-day basis when the employee is out on FMLA leave.
Final point: The Massachusetts Attorney General administers the vacation law. Her office has issued guidance about vacations.
Please contact the AIM Employer Hotline at 800-470-6277 if you have any questions about this or any other HR-related matter. 
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