Are All Employees Entitled to Vacation Pay?

Although paid vacation is a sought-after perk, not every employee qualifies for scheduled time off with pay. In fact, U.S. employers are under no obligation to offer vacation time to their workers. In general, however, when paid vacation is provided, a written policy governing accrual, administration and payment for these days off must be established and made available to employees.

The Fair Labor Standards Act, which is the federal law that governs employer and employee rights and responsibilities, maintains that vacation pay should be arranged between the company and its workers. This means that workers in the United States are not entitled to vacation pay, with the exception of certain government construction contractors and subcontractors. However, the United States Bureau of Labor Statistics reports that 90% of full-time employees who work in the private sector receive vacation pay.

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How Prevalent Is Vacation Pay?

In 2013, a research report released by the Center of Economic and Policy Research indicated that the United States is the only developed nation that does not require employers to pay employees for vacation time. Most European countries mandate 25 to 30 days of paid vacation annually, compared with 10 in Canada and Japan and 20 in New Zealand and Australia.

In the U.S., vacation time dramatically varies depending on the type of company, the employee’s categorization and other factors. The report provided these details:

The average U.S. worker receives 10 paid vacation days and six paid holidays each year.
23% of U.S. workers receive no paid vacation days or holidays.
49% of workers in the bottom quarter of average earnings receive paid vacation time, compared with 90% of those in the top quarter of earners.
Only 35% of part-time workers receive paid vacation days or holidays, compared with 91% of full-time workers.
Small companies, defined as those with 99 or fewer employees, are less likely to provide paid vacation to part-time and low-wage employees than companies with more than 100 employees.
When part-time and low-wage employees do receive paid vacation and holidays, they receive fewer days on average than full-time and/or higher-earning counterparts.

What Are the Most Common Vacation Policies in the U.S.?

In the absence of federal regulations, companies are able to set their own policies about vacation time, and these policies need not apply equally to all employees. For example, vacation benefits may be limited only to employees on the full-time payroll and unavailable to part-time and temporary workers. Even when all employees receive vacation time, some workers may negotiate more paid time off or higher-paid workers may accumulate time off at a faster rate than those who earn a lower salary. Some companies offer designated banks of time for personal, vacation and sick days off, while others provide one bank of paid time off that can be used for any of these purposes.

Although employers have significant flexibility when setting vacation policies, all policies must be legal under the Fair Labor Standards Act. This means that employees who do the same job and have the same amount of seniority must be treated the same way regarding vacation time. Decisions about paid vacation cannot be made on the basis of protected categories including but not limited to gender, race, religion and disability.

Most employers offer vacation pay on a “use it or lose it” basis. This prevents employees from banking time over multiple years to accrue months of paid vacation. At some companies, employees receive the balance of their vacation time at the beginning of the year, while other workers must accrue paid time off during each shift.

If the office or workplace is closed because of inclement weather, employees can be required to use a vacation day to make up the unworked hours. However, a policy to this effect must be in place before the poor weather incident in question.

Do Individual States Have Laws About Vacation Pay?

Although no states mandate paid vacation time, some states have laws about how this benefit must be administered when it is offered by the employer. Notable state vacation pay laws include the following:

In Alabama, employers that offer paid time off cannot revoke this benefit based on employee performance.
In Alaska, Iowa, Maryland and Idaho, the state’s labor department will enforce an existing vacation pay contract between employer and employee.
In Arizona, Colorado, Connecticut, Indiana, Louisiana, Maine, Maryland, Michigan, Minnesota, Mississippi, Nevada, New York, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wyoming, North Carolina and Arkansas, unused vacation time must be paid out upon termination if the employer has a policy of doing so.
In California and Montana, earned vacation time is equated to wages and cannot be forfeited on termination. “Use it or lose it” vacation policies are prohibited, though caps on accrued time are allowed.
In Illinois, North Dakota and Massachusetts, final compensation must include earned vacation time and employees must be given ample opportunity to use their accrued vacation days.
In Nebraska, unused vacation days must be paid in the event of employee termination and use it or lose it policies are strictly prohibited.

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