If you are an employee who is fortunate enough to receive paid vacation from your employer, you may not realize that this is likely at your employer's discretion. There is no federal law requiring employers to give workers paid vacation, even though many employers do decide to provide it as a benefit. The Fair Labor Standards Act (FLSA), which covers minimum wage and overtime, does not require you to be paid for time that you did not work, including vacation time. Instead, paid vacation is provided based on the employment agreement between an employee and employee, or sometimes a collective bargaining agreement.
Employer Discretion in Providing Paid Vacation Time
Since an employer provides paid vacation by choice, they have substantial room to determine who is eligible for vacation, how they accrue vacation time, and when they can use vacation. Employers may choose to provide a few days of paid vacation, or they may decide to provide much more. They may provide this paid vacation only to executives, or it may be provided to all employees. They may give paid vacation only to full-time employees, rather than part-time workers.
However, employers are bound by anti-discrimination laws. They cannot make a decision about whether to provide paid vacation to an employee based on protected characteristics. For example, under Title VII of the Civil Rights Act, if they have at least 15 employees, they are forbidden from making decisions about who should get paid vacation based on race, sex, religion, or national origin.
Restrictions on Use of Paid Vacation Time
When you use your paid vacation may also be subject to employer restrictions and company rules. For example, employers may require employees to provide advance notice regarding when they will take their paid vacation. Or they may prohibit employees from using paid vacation during a busy time of the year. There may be a waiting period of several months to use a paid vacation or restrictions about how much vacation you can use at once. These restrictions are usually set forth in an employment handbook or contract.
In some cases, paid vacation is accrued over time. You might earn a paid vacation day each month that you work for a particular company. Or you may accrue a set amount of paid vacation for the first five years with an employer, and then you may be able to accrue more. However, employers can also cap how much time is accrued. This cap might require you to use some of the vacation time before accruing any more paid vacation time.
Cashing Out Paid Vacation Time
There are some states in which vacation time is considered a type of earned wages. This means that if you quit or are subject to termination, you are supposed to be able to cash out on the paid vacation. In these states, there may still be a cap on vacation accrual, whether that cap is based on what is considered reasonable or based on a ratio of the annual accrual. If you are fired or quit, you should look into whether your employer is required to pay out the vacation time that you did not use. In some cases, you may be entitled to pay for that time. This may be mandated by state law. You can determine that by consulting an attorney or your state labor department. Or an employer may need to pay if its policy or practice is to do so.