While the idea of unlimited vacation may sound nice in practice, it has a nice side benefit for employers, too.
If you’re laid off from your job or quit to go elsewhere, does your employer owe you the vacation time you’ve accrued?
As with so many things related to employment law, the answer, unfortunately, is “it depends.” And if your employer has an “unlimited” vacation policy, it may owe you nothing at all.
Employees at BuzzFeed got a taste of the patchwork nature of these policies after the media company said in January it was cutting about 15 percent of its workforce, or 200 jobs. At first, according to a letter posted on Medium by the BuzzFeed News Staff Council and signed by more than 500 employees, the company did not plan to pay out the unused time off employees had earned, except to workers in California, where it is legally required.
But later, the company said it would pay accrued-but-unused time off after all, including in states where it’s not mandated. (A company spokeswoman noted in an email to The Washington Post that employees’ severance included a minimum of 10 weeks’ salary and pointed to a BuzzFeed executive’s memo that said severance was adjusted “to be fair and competitive in every state where we operate.”)
The move came “after hundreds of us protested a plan to withhold” the earned paid time off, wrote Dominic Holden, a political reporter for BuzzFeed News, on Twitter, applauding CEO Jonah Peretti for changing course. “Lots of other CEOs would have told us to p— off.”
Indeed, by law, many CEOs could technically do just that. Still other employers may seek ways around the requirements: As more companies offer unspecific, “unlimited” vacation policies, that can also mean there’s not a specified number of days they’d be forced to pay out when an employee quits or gets fired.
Employees typically either start off the year with a bank of days that are owed to them or accrue the benefit over time, earning a certain number of hours per month. Some states legally require employers to pay out that vacation time that’s been “earned” and left on the table in all cases; most go by whatever an employer’s policy or an employment contract says it will do.
But many employers, particularly in competitive industries or among larger employers with multistate workforces, choose to make it a blanket policy to pay out the vacation time or offer it when employees exit as a show of goodwill.
“In the grand scheme of things, it often isn’t big numbers and you can alleviate a costly legal fight,” said Jonathan Yarbrough, an employment lawyer at Constangy, Brooks, Smith & Prophete. “It really is just frankly a choice, unless you’re in one of the states that require a payout of earned wages.”
Marc Mandelman, an employment lawyer at Epstein Becker Greene in New York, counts eight states that have statutes requiring employers to pay out unused but earned vacation time, including Illinois and Massachusetts, but he says most of his clients do it in practice. Industries where companies compete heavily for talent, such as financial services or technology, are more likely to offer it — even where it’s not required — than those that have more low-skilled, low-wage jobs, such as retail.
“Even companies of relatively modest size that are looking to attract and retain qualified workers” do this, he said. “These types of paid leave benefits are a huge factor in recruitment.”
Other employment lawyers say it’s still pretty hit or miss. “I don’t see one clear trend,” said Melissa Osipoff, a partner with Fisher Phillips in New York. “I see just as many employers who don’t pay it out unless required by state law as I do employers who will.”
Yet, as more employers have begun offering “unlimited” paid-time-off policies where the company suggests that workers can take the time they need, rather than be allotted a certain number of days, employees could also lose out. The perk can mean more flexibility and generous vacation time in some cases. But by not defining the number of days employees get off, employers also aren’t on the hook for paying out a certain number of hours when a employees leave. Nor must they carry over allotted vacation time on their books from one year to the next, which would set up an accounting liability in those states where doing so is legally required.
The rise of state and municipal paid-sick-leave policies have also played a part in the increased use of such “nonaccrual” approaches to paid time off, said Mandelman, or as he calls them, “no-cation” policies. For years, he explains, companies have moved toward giving people a bank of paid-time-off days rather than separate buckets of vacation, personal and sick days. But as states and cities have increasingly passed paid-sick-leave mandates, employers have had to expand those PTO banks, swelling the liability employers must carry in some states.
“It’s much larger amounts of time that employers are entitled to pay out,” he said. “That’s a workaround for these jurisdictions” where employees can carry over accrued time or where employers must pay out what’s unused.
In other words, while the idea of unlimited vacation may sound nice in practice – and indeed, with the right boss who is clear with employees on how they can use it, it very well can be — it has a nice side benefit for employers, too.
“It’s a great recruiting tool,” Yarbrough said. “And generally upon termination, there’s nothing to pay.”