Employers that have policies saying vacation is paid out at the end of employment must comply with those policies. In most states, employers can refuse to pay out unused vacation at the end of employment by implementing a use-it-or-lose-it vacation policy. Many employees are rudely surprised when they find out the employer that wouldn't let them use their vacation days also doesn't have to pay them out. Most employers can also require employees to use their vacation by a certain date, usually the end of the year, or lose it. That means you'd better use those vacation days in the next few weeks if you're like most employees.
However, some states protect their citizens by barring use-it-or-lose-it vacation policies. Here are some states that look out for their voters:
Before I tell you which states, I want to make a plug for you to vote for this blog in the ABA Blawg 100. I'm honored to announce that Screw You Guys, I'm Going Home is listed as the only employee-side blog in the Labor and Employment category, and now the voting is going on for the top blog in each category. It takes only a minute to register and vote. I'd sure appreciate your help. Now, back to the post.California: Under Cal. Labor Code §227.3, all accrued vacation must be paid when employment ends. California also prohibits policies that make employees take vacation by a certain date or lose it. In one California case, an illegal policy cost the employer millions.
Illinois: Under 820 ILCS 115/5; 56 Ill. Adm. Code 300.520, employers have to pay out accrued vacation pay at the end of employment unless a collective bargaining agreement with a union provides otherwise. While they can have a policy saying employees have to use vacation time by a certain date or lose it, employers must permit employees a reasonable opportunity to take those vacation days before they're gone. 56 Ill. Adm. Code 300.520(e).
Indiana: While employers can have a use-it-or-lose-it policy in Indiana, employers have to pay out accrued vacation if their vacation policy is silent on the issue. See Indiana Heart Associates, P.C. v. Bahamonde, 714 N.E.2d 309 (Ind. App. 1999); Die &Mold, Inc. v. Western, 448 N.E.2d 44 (Ind. App. 1983).
Louisiana: Vacation pay is earned wages, so policies requiring the forfeiture of earned vacation pay are not enforceable. Beard v. Summit Institute, 707 So.2d 1233 (La. 1998). However, they may implement use-it-or-lose-it policies saying employees must use by a certain date or lose the vacation.
Maryland: Like Indiana and Louisiana, while employers can implement policies, if the policy is silent on the issue vacation must be paid out at the end of employment.
Massachusetts: Employers have to pay out accrued vacation pay at the end of employment. While they can have a policy saying employees have to use vacation time by a certain date or lose it, employers must permit employees a reasonable opportunity to take those vacation days before they're gone. MA Atty. Gen. Advisory 99/1.
Michigan: Similar to Indiana, Louisiana and Maryland, while employers can implement policies, if the policy is silent on the issue vacation must be paid out at the end of employment.
Nebraska: Nebraska law prohibits employers from failing to pay out earned vacation or from policies saying employees must use vacation by a certain date or lose it. See Neb. Rev. Stat. § 48-1229(4); Roseland v. Strategic Staff Management, Inc., 272 Neb. 434, 722 N.W.2d 499 (Neb. Sup. Ct. 2006); Neb. Dept. of Labor FAQ.
New York: If the policy is silent on the issue vacation must be paid out at the end of employment.
North Carolina: If the policy is silent on the issue, vacation must be paid out at the end of employment. N.C. Gen. Stat. § 95-25.12.
North Dakota: Employers can't require an employee to forfeit accrued or earned vacation leave upon separation from employment, regardless of the reason. ND Admin. Code § 46-02-07-02(12). However, they can implement policies saying vacation must be used by a certain date or be lost.
Ohio: While use-it-or-lose-it policies are allowed, vacation must be paid out at the end of employment if the policy is silent on the matter. See Fridrich v. Seuffert Construction Co., 2006 Ohio 1076 (OH App. 2006).
Oregon: Oregon is another state that allows such policies but requires employers to pay out vacation if the policy is silent on the issue.
Rhode Island: Employers must pay employees who have completed at least one year of service for any vacation pay accrued in accordance with company policy or contract on the next regular payday for the employee when they leave. RI Stat. § 28-14-4(b).
West Virginia: If the policy is silent on the matter, vacation has to be paid out at the end of employment. See Meadows v. Wal-Mart Stores, Inc., 207 W. Va. 203, 530 S.E.2d 676 (WV Sup. Ct. 1999). Otherwise, employers are allowed to implement such policies.
Wyoming: In Wyoming, an employer cannot require an employee to forfeit accrued or earned vacation on leaving. WY Dept. of Employment FAQs.
Some vacation policies are an earned benefit under ERISA, so employers that have no use-it-or-lose-it policy and fail to pay out earned vacation may risk a lawsuit under ERISA.
If you want to know about your state's vacation laws, a great state-by-state summary is here. For more on employee benefits, read my article Top Nine Things You Need To Know About Your Employee Benefits.