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The Dog Days of Unused Vacation

by FCIS Team | This article was posted on 08 17, 2021 | Uncategorized

Vacations are a good idea. We all need to re-charge our batteries. Western Europe has it figured it out; employees receive several weeks off a year and companies don’t try to get much commerce done in August since most of the workforce is on vacation. Unfortunately, U.S. businesses are notoriously stingy when it comes to time off. Even when employers offer generous time-off benefits, however, many of those benefits go unused. One study, by Samuel Adams (the beer folks), estimated that in 2016 Americans did not take 662 million vacation days to which they were entitled. Another study found that 59% of managers and 53% of all employees don’t use all their vacation each year.

Worker burnout is a problem, so employers should consider being more vigilant about insisting that employees use their vacation time. It’s not only good for employees but it’s in the employer’s best interest. Although California allows a cap on vacation accrual, all vacation is assigned a dollar amount and must be paid out at separation from employment (unlike many states that allow “use it or lose it” policies).

For those employers who lump vacation and sick time together as Paid Time Off (PTO), the same accrual, cap and payout rules apply. By keeping the vacation and sick time separate, however, an employer doesn’t have to pay out unused sick time when an employee leaves.

Some employers don’t accrue vacation days for senior-level employees (as with our attorneys). Some larger employers in the Silicon Valley offer this program for all employees in their workforce. There is no accrual to pay at separation, which saves money.

I’m not aware of comprehensive studies, but there’s some thought that employees actually take less vacation when there’s no tracking; either out of guilt, peer pressure or management pressure. If an employer implements a “no accrual” system for some or all employees, the employer should ensure that employees are indeed taking a reasonable amount of vacation.

Having a lot of employee vacation accrued on its books is a contingent liability that can affect a company’s credit availability. Some employers have become creative to solve the accrual problem—by allowing a PTO “exchange,” in which employees may trade PTO (or vacation days) for additional contributions to their 401(k), make vacation-day donations to employees in need of extra paid time for illness, add money toward college tuition or make donations to a favorite charity. Other companies permit employees to cash out some of their vacation days.

It’s clear that taking steps to ensure employees use their vacation days or PTO is good for employees and employers. Increased morale and increased productivity are only two of the likely benefits when employers provide a fair, flexible time-off program that employees can use to the fullest.

Jonathan Fraser Light is the managing attorney and co-founder of LightGabler (lightgablerlaw.com), an employment law boutique representing employers of all sizes throughout Southern and Central California. He may be reached at [email protected].