Q. My employee is not working out after 30 days. What are my obligations to pay him for unused vacation time when we let him go?
A. Assuming vacation time is provided, the answer to the question regarding the payment of unused, accrued vacation time upon termination depends entirely on state law. NH law requires that an employer pay all wages due at the time the wages are due and owing. Wages include vacation pay, severance pay, personal days, holiday pay, sick pay, and payment of employee expenses, when those benefits are a matter of employment practice or policy, or both. When benefits are a matter of policy, NH law requires that the employer make available to employees in writing, or through a posted notice maintained in an accessible place, employment practices and policies regarding vacation pay. In addition, employers must provide employees with a written or posted detailed description of employment practices and policies related to paid vacations, holidays, sick leave, bonuses, severance pay, personal days, payment of employee expenses, pension and all other fringe benefits, and maintain on file a signed copy of the notification.
In order to understand whether the employee is entitled to pay out of vacation time, we will need to know the answers to the following questions: How do employees accrue vacation – all at once or gradually? What does the policy say about pay out of accrued, unused vacation when at the end of employment? Have employees been provided with written notice of the policy? What does the offer letter state regarding vacation time? Regardless of the written policy, how have terminating employees been treated in the past?
The written policy will likely dictate the result, however company practice could change the result if it is inconsistent with the policy. If the employee received a written vacation policy that stated that no employees are paid out for accrued, unused vacation at the termination of employment and the employer can show that the employee received notice, then the employee is not entitled to a payout. If there is no written policy, or if the employee believes that employees are paid for accrued, unused vacation at the end of employment, then the NH DOL will look to the company practice. The company should keep sound employment records to enable it to show that it adheres to its written vacation policies or practices.
Best practice? Companies should decide and define the policy in regard to accrual, roll over and payout of unused vacation upon termination of employment. The policy should be given to all employees upon hire, who sign an acknowledgment of receipt kept in their personnel files. Most importantly, management must follow its policy or its practice will win the day.
Beth Deragon can be reached at firstname.lastname@example.org.
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