Published in New Hampshire Business Review:
Q. When John, an employee of New Hampshire company Acme, Inc., quit to take a new job elsewhere, Acme paid him wages through his last day at work. Now, John says that, as a salaried employee, he should have been paid for the full pay period (two weeks) instead of just through his last day on the job. He also claims that he should be paid for three weeks of unused vacation time, even though Acme has a “use it or lose it” vacation policy. Is John entitled to this additional pay?
A. Whenever an employment relationship ends, whether voluntarily or involuntarily, the departing employee is entitled to be paid for all wages owed. The amount and timing of the payments depends upon several factors such as the circumstances of the termination and the written personnel policies of the employer. John’s claim involves two issues that will commonly arise when a salaried employee voluntarily leaves a company to take another job.
John takes the position that, as a salaried employee, he is entitled to be paid for the entire two-week pay period during which his employment ended, even though his last day was before the end of the pay period. John is probably referring to the requirement under New Hampshire law that salaried employees must receive full salary for any pay period in which the employee performs any work, without regard to the number of days or hours worked (RSA 275:43-b). However, there are some important exceptions to the requirement of full salary for the entire pay period. The law allows employers to prorate salary to a daily basis when a salaried employee terminates the employment of his own accord before the end of a pay period, or is terminated for cause by the employer. Likewise, an employer may prorate a salaried employee’s pay when the employee is hired after the start of a pay period. Other exceptions to the law requiring payment for the full pay period include time not worked for disciplinary suspensions, FMLA leave, and for bereavement or other voluntary leave requested by the employee under a written, bona fide unpaid leave policy. In this case, because John terminated his employment voluntarily, Acme is entitled to prorate his pay to a daily basis for the last pay period. Note that the proration permitted by the statute is to a daily basis, not an hourly basis. Even if John leaves after lunch on his last day, Acme must still pay him for the full day, and not for half a day.
Whether John is entitled to payment for his unused vacation pay depends upon the circumstances. Employers are under no legal obligation to provide employees with paid vacation time. When employers choose to provide employees with paid vacation as a matter of employment practice or policy, as most employers do, that vacation pay, like other forms of paid time off, constitutes “wages” under New Hampshire law (RSA 275:43). The terms of Acme’s policy and practices relating to vacation will determine whether John is entitled to be paid for unused vacation time. State law requires that employers make available to their employees in writing or through posted notices their policies and practices relating to fringe benefits, such as paid vacations, holidays, sick leave, bonuses, severance pay, personal days, payment of employee expenses, and pensions (RSA 275:49, Lab. 803.03). Employers are also required to give employees notice of any changes to these policies and practices before the changes go into effect. New Hampshire employers are free to adopt a “use it or lose it” vacation policy, stipulating that employees may not carry over unused vacation time to subsequent years or receive payment for unused vacation time upon termination. These policies, however, must be clearly documented in writing, communicated to employees in advance, and uniformly applied. So long as Acme’s vacation policy meets these criteria, Acme should not be required to pay John for any unused vacation time upon his resignation.
Adam Hamel is an attorney in the Employment Practices Group of McLane, Graf, Raulerson & Middleton, Professional Association. Adam can be reached at 628-1189 or [email protected]. The McLane Law Firm is the largest law firm in the State of New Hampshire, with offices in Concord, Manchester, Portsmouth and Woburn, Massachusetts.