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October 7, 2021

Best Practices: Managing Vacation Benefits

In today’s competitive job market, a generous benefits package can be an essential tool for attracting and retaining top talent. Still reeling from the impacts of an unprecedented pandemic, workers are now, more than ever, focused on their well-being and achieving a greater work-life balance. In fact, a recent Deloitte study found 80% of those who responded ranked “well-being” as a top trend. To aid in recruiting and retention efforts a growing number of employers are initiating or revising current vacation benefits policies. Below are a few key points to keep in mind to ensure your vacation policy is legally compliant. 

Employers are not required by law to provide employees with paid vacation; it is a non-mandatory benefit. However, once an employer elects to provide paid vacation to its employees, there are some important guidelines that must be followed.

Offering Vacation Benefits
Under California law, once accrued, vacation time is considered wages. This is because vacation time is earned as work is performed. Vacation time cannot be forfeited for any reason including termination. Because vacation is considered a discretionary benefit, employers retain the right to: 1) control when an employee begins accruing vacation benefits; 2) control when an employee may take vacation time; 3) cap the amount of vacation an employee may accrue; 4) make certain classifications of employees eligible and others not; and 5) determine the accrual rate. Lastly, because vacation pay is considered wages it must be paid out upon termination.

Arizona law no longer expressly includes vacation pay in its definition of “wages.” However, prior to its 2016 statutory amendments, wages due at separation included vacation pay if the employer had a policy or practice of making such payments.

As discussed here, Colorado has recently made important changes to existing laws regarding earned but unused vacation benefits. These changes have brought Colorado into alignment with both Arizona and California laws prohibiting “use-it-or-lose-it” vacation-related policies. All three states require an employer who chooses to offer vacation pay benefits to pay out any accrued/earned, but unused vacation pay upon separation of employment.

How Vacation Is Accrued?
Many agricultural operations provide a vacation benefit structure that pays out accrued vacation time in money at the end of their fiscal year. This allows the employer to offer vacation as a benefit, but not have to worry about employees wanting to take time off during the busy season. Employers have the flexibility to decide what percentage of the employee’s gross wages will be given to them in vacation pay. In addition, many companies split the season into two “periods” and calculate the vacation pay differently depending on the “period” of the year. For example, a company may pay 2% of gross wages during the first 6 months of the season (or the first 500 hours worked); and then pay 4% during the second 6 months (or any hours over 500).

For salaried employees, the accrual method is usually a certain number of days per year. For example, if an employee receives one week of vacation per year, that employee is accruing 5 days over a twelve-month period. If that employee were to leave four months into their employment (without taking any vacation time), the company would owe that person 1.6 days. The calculation is that five days over 12 months is 0.4 days per month, times the four months the employee worked. Although the Labor Commissioner of California has stated that technically vacation is accrued daily, weekly and/or monthly calculation may suffice.

Members who have questions regarding implementation of vacation pay benefits policies should contact Western Growers.