Tips for dealing with costly accrued vacation issues


Because of the recession, your company has been forced to operate with a reduced workforce for the last few years. Not only has this made it difficult to accommodate everyone's vacation requests, but accrued vacation balances are starting to be a real concern. What can you do to prevent costly accrued vacation problems?


"Unless employers are aware of the financial impact accrued but unused vacation can have on their companies, vacation accrual and its implications sometimes fly under radar," says Christopher J. Boman, partner at Fisher & Phillips LLP’s Irvine, California, office. “To prevent unexpected financial hits, employers should ensure that their vacation policy caps accrual and that the policy is properly administered to achieve the intended benefit of vacation allowing employees to leave the workplace and return refreshed, reinvigorated, and ready to be productive contributors to the company."

Boman offers the following tips for employers and HR when dealing with vacation issues:

  • Understand the purpose of vacation. Vacation time is an opportunity for workers to rest and return to work rejuvenated. This can increase productivity upon their return, boost morale, and instill an appreciation for the benefits of working for your company. Employers should ensure that their staff uses their vacation, as it benefits both the employee and the employer.
  • Understand the legal issues related to vacation. Accrued but unused vacation can not be forfeited. Because accrued vacation is considered a wage under California law, "use it or lose it" plans can create significant liability. Other options are available to employers to ensure that employees derive the intended benefit from vacation plans.
  • Cap vacations and implement policies to enforce. To ensure that accrued vacation balances do not spiral upwards in perpetuity, a company should implement a policy capping accrual at a certain amount. When employees hit a specified number of hours, they will stop accruing additional vacation time. Until they take vacation (depleting their balance), they will not accrue any more hours. This can prove helpful in controlling vacation accrual and encourages employees to take their earned time off. In addition, employee handbooks must include the company policy on vacation accrual; otherwise, it will be difficult to prove the policy was in place and understood by the staff.
  • Remember the current wage must be paid for ALL accrued time. While many long-term employees may have started accruing vacation time when they were earning a lower rate of pay, the current wage is what they'll receive when cashing in their vacation time. If a veteran employee making $40 per hour started with the company making $20 per hour, the employer is essentially paying double for old vacation time that was never taken.
  • Know employer rights to force vacations and approve them. Employers can force staff to take vacation when they accumulate a specific amount of vacation or to achieve certain business needs. The same applies for approving employee requests for time off. If six employees all want time off in the same week, this can create a hardship on the business. Employers should be able to approve all vacation requests, require reasonable notice, and reserve their rights to require employees to take time off at certain times. Each is helpful for employers to successfully administer vacation policies and ensure that vacation is used for its intended benefit.

Source: Fisher & Phillips LLP;

[ Return to top of document ]