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Company pays employess accrued vacation upon separation, changes to use it or loose it.

Allan   Eisenberg's Profile

For many years company has clear policy of paying accrued vacation in cash when an employee leaves. January 2014 regardless of reason for departure an employee leaving will cash out all accrued and unused vacation. January 15 company announces a new vacation plan goes into effect. New plan is a "use it or loose it" plan. Employees will get 150 vacations hours on February 1 and must use it by January 2015 or loose all unused hours. They also advise that all unused accrued from prior plan will not be paid out (cashed out.) All unused accrued vacation, from old plan, will be wiped of the books. Employee X has 130 accrued vacation in January. February 1 employee looses her accrued unused vacation from old plan but is given 150 hours of new use it or loose it plan. On February 4 employee is laid off. Employee is notified that she lost her old hours when plan changed. She is also informed that she is not entitled to cash from the new plan because it is a use or loose it plan. There is no state statutory law regarding this situation. It appears that employee is out of luck. If you can suggest how she might be helped, please share your knowledge. Thank you, StV


Elena Lokchina
Title: Chief Financial Officer
Company: architects Alliance
(Chief Financial Officer, architects Alliance) |

According to the Ministry of Labour in Ontario all unused vacations ( 2% minimum) should be paid if an employee is leaving the company. You can have your internal policy which will be encouraging people to use their vacation during a certain period of time.
See also explanations on the Ministry of Labour site in Ontario.

(CFO/Board Advisor) |

In some states there is no "statutory law" regarding this situation, only "general law". In states like California this would be specifically illegal. In most cases, accrued and unused vacation is viewed as "wages" once earned in cannot be forfeited. In some states, use-it or lose-it policies are not allowed. However, in these states it is legal to cap or limit the amount of vacation which can be accrued and left unused. Also, a change in policy should give the employee adequate time to use any accrued and unused vacation so as to limit any forfeiture. Since this change in policy most likely effected a number of people, I would suggested the employee first start by filing a claim with the state labor board. The employee may also want to begin a lawsuit. Before doing either, she may want to advise the company of her intent, as any claim or suit will most likely cover all impacted employees. The company may decide that "paying her off" would be less costly than having a labor board review/investigation or lawsuit.

One editorial opinion however: Who are the managers of these classless companies, that effectively cheat employees out of something they have earned? Don't they realize it is the people that make their businesses successful, and not the management?

Yolanda Henderson
Title: Accounting Manager
Company: Habitat for Humanity Intl
(Accounting Manager, Habitat for Humanity Intl) |

My company changed to a "use it or loose it last year policy" two years ago. In the past, longtime employees were exiting the company with $15k - $30k in cash. The company could no longer withstand such cash outlays.

Andrea Biondi
Title: executive Assistant, Office Manager
Company: Easilydo
(executive Assistant, Office Manager, Easilydo) |

California law says earned vacation time is considered wages, and it cannot be forfeited (or taken away) under any circumstances. Therefore in California your scenario is illegal.

Linda StClaire
Title: VP Finance
Company: Extron Inc.
(VP Finance, Extron Inc.) |

When employees reach their "cap" and no longer accrue further vacation, do I have to or can I cash them out? Do I have to?

Robert Price
Title: CFO/Board Advisor
Company: Not Disclosed
(CFO/Board Advisor, Not Disclosed) |

Once an employee reaches the cap, they no longer earn nor accrue additional vacation time until the amount of accrued and unused vacation is reduced below the cap. There is no requirement to cash the employee out. Vacation time just stops being earned and accrued. Example:

The Cap is 96 hours (12 days)
The employee accrues vacation at the rate of 8 hours (1 day) per month. At the end of June the employee reaches 96 hours of accrued and unused vacation.
The employee doesn't take any vacation in July or August, but takes 80 hours of vacation in September.
The employee would not earn or accrue any additional vacation time in July or August as the cap had be reached.
The employee would begin earning and accruing vacation again in September, as the amount of accrued and unused vacation had been reduced below the cap.


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