"Use it or lose it" employee vacation policies are where an employee’s vacation time will expire at the end of the year if they haven’t used their vacation days or hours. In many cases, employee vacation days may "carry over" into the next year, pay term, or quarter.
However, with a use it or lose it arrangement, the workers’ unused vacation time will simply expire at the given time period (usually the end of the year).
These types of arrangements generally depend on the particular work agreement formed between the employer and employee during hiring negotiations. Some employers allow accrued vacation, which is where unused vacation time is saved and paid out to the worker if the person resigns or is fired or terminated.
Employers in all states except for California, Montana and Nebraska have the right to set a date by which employees must take their accrued vacation or they lose it in the next vacation period set by the employer.
This means that if the employee does not use the vacation, they cannot roll it into the next year or accrue vacation time and use it all at once.
Companies and employers benefit of the use it or lose it policy because it has several advantages:
- Employees will take advantage of the vacation time and use it when available;
- Employees will take less extensive vacations since they cannot accrue or roll over year after year; and/or
- Companies are free of their unused vacation liability.
It depends on state law as to whether you are entitled to be paid for any unused vacation time. For example, 24 states require an employer to pay an employee for any vacation time that the employee did not use. In some jurisdictions, an employee must work for an employer for at least one year to be eligible to receive unpaid vacation time.
As mentioned, any vacation policies that are formalized into an employment contract must be honored, as those are enforceable under law. If an employer breaches an employment contract, the worker may be entitled to legal damages.
They may need to file a lawsuit to recover damages. These damages can cover losses such as the amount of wages owed due to a withholding of vacation credits.
If an employee has a dispute over a vacation policy, has not received their vacation or they were not paid for unused vacation time, the employee can:
- File a wage claim with the state’s employment agency
- File a lawsuit against their former employer
Employment laws can often vary widely by state, especially when it comes to vacation policies. Use it or lose it policies can sometimes be prohibited depending on your location. If you have any legal conflicts or disputes, you may need to hire an employment lawyer for advice and guidance. Your lawyer can help inform you of your rights under state law. Also, if you need to file a claim or lawsuit, your lawyer can provide you with representation during the process.