DO I OWE MY EMPLOYEES ACCRUED VACATION PAY WHEN THEY LEAVE?
Several times a month, a different client asks whether it needs to pay departing employees accrued vacation leave. The answer is always, “It depends.” It depends on two things. First and most important, it depends on whether the company has a written policy in the employee handbook or in a separate employment contract that governs the situation. Second, it depends on the governing law of the state in which the employer operates. Maryland law provides that the employer’s policy governs the situation, assuming the policy was communicated to the employee in writing at the time of hiring. For example, if the company informs its workers that used vacation leave will be lost or forfeited upon termination, then an employee will not be entitled to claim it. However, where there is no written policy addressing the situation, the company must pay to the employee the cash value of whatever unused vacation leave the employee had accrued. Laws in Pennsylvania and Virginia are silent on the issue. Fringe benefits, such as vacation pay, are not required and companies are free to draft their own policy regarding such fringe benefits. Thus, a company’s written policy governs whether the employee is paid out her accrued vacation upon departure. There is no default provision that requires the employer to pay accrued vacation time after the employee leaves, like that in Maryland. Employers should look at their written vacation policy and follow it accordingly. It may be reasonable to have a policy that states, “Only employees who resign from the company in good standing after providing appropriate written notice will receive their unused, accrued vacation pay. In all other situations, employees forfeit any accrued vacation pay.” If you are still not sure whether you want a policy, consider the employee who is being terminated for poor performance, for misappropriation of funds, for lying on their job application, or for bullying and decide whether that’s the person who should be “rewarded” with payout of their vacation because your business did not have a written policy that addressed the issue.
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