January is a time to get back to work. With holiday vacations and 2014 now solidly in the rear view mirror, employees are working hard — and again starting to accrue vacation time. This edition of the HR Law Insider discusses what is required of employers when it comes to vacation time and vacation pay.

No law requires Arizona employers to provide vacation or vacation pay (PTO is treated the same). Providing vacation or PTO to employees is purely voluntary. Most employers provide the benefit to attract quality employees, allow employees time to recharge, and because it is almost unheard of not to provide it.

HOWEVER, if an employer provides a vacation benefit, the employer will be bound by its policy — until and unless it changes that policy. Once vacation is “accrued” or earned, an employer cannot retroactively change its policy. Rather, any change must be applied prospectively, to future events.

In my experience, employers frequently err by not a evaluating what they truly want their vacation policy to look like or how it will work in real world situations. This typically results from the use of “form” employee handbooks handed down from third parties or cut and pasted off the internet. Significant problems can occur when an employer binds itself to something it didn’t intend, such as the unpleasant surprise of having to pay a long time employee tens of thousands of dollars in unused, accrued vacation pay upon the employee’s departure.

Here are important questions every employer should ask and answer when implementing or updating it’s vacation policy:

*  Whether to allow employees to take vacation time before it is accrued.  If allowed, and an employee ends employment with a negative balance, how to treat the situation.

* Whether to allow vacation time or vacation pay to roll over into the next year, or to have a use it or lose it policy.

*  Whether to cap the maximum amount if rollover is allowed.

*  Whether to reduce exempt employees’ vacation balance if they take partial days off (this will not remove the exemption from paying overtime, whereas docking the employee’s pay would remove it).

*  Whether and how much notice will be required of employees requesting vacation.

*  Whether to have a policy that any accrued vacation is forfeited at the end of employment, or forfeited if the employee is terminated or resigns without notice.

*  Whether to treat some employees differently, and if so, how to evaluate the risk of a discrimination claim presently or in the future.

*  Whether the employer is keeping good track of vacation time and accounting for any large balances in employees’ accounts (if rollover of vacation time is allowed).

*  When and how to seamlessly implement a new policy.

Employers should review their vacation policy annually to determine whether it needs to be tweaked, overhauled, or outright scrapped. This simple task will result in a policy that works for your business, your employees, and your needs. Because there is no requirement to provide vacation, employers have unlimited discretion in drafting a policy that fits their needs.


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