Vacation pay is wages paid for time off taken for vacation. Federal law does not require it, so the rules come from the employer’s policy and state law, especially on accrual, carryover and payout when someone leaves.
| Decision | Options | Check |
|---|---|---|
| Accrual | Per hour worked, per pay period or a yearly grant | Policy |
| Cap | Maximum balance, such as 1.5 times the yearly amount | Some states limit forfeiture |
| Carryover | Roll over all, some or none | State law |
| Payout at separation | Paid, not paid, or partial | State law and policy |
| Rate paid | Regular rate at the time taken | Policy |
See how to calculate vacation pay for hourly employees and PTO payout.
A restaurant’s policy gives every employee 1 hour of vacation for every 30 hours worked, with a cap of 60 hours. A part-time server works 25 hours a week, about 1,300 hours a year, and accrues 1,300 / 30 = about 43 hours of vacation a year.
In August she takes a week off and uses 25 hours, paid at her regular $14 base rate: 25 x $14 = $350. That week she worked no hours, so no overtime question arises. The next week she works 40 hours; the vacation hours from the week before do not count toward that 40.
When she leaves in November with 18 hours unused, payroll checks the state’s rule. In this state, earned vacation must be paid at separation, so her final pay includes 18 x $14 = $252.
Vacation requests cause conflict when the rules for approving them are unclear. Write down how far in advance requests should be made, how many people can be off on the same shift, how conflicts are settled (first come first served, rotation for holidays, or seniority) and how quickly managers must respond.
Publish blackout periods early, such as the two weeks before a holiday in retail, so people plan around them. When requests and approvals are recorded in one place, managers can see coverage before approving and employees can see the status without asking.
A small warehouse with 16 employees gets 11 vacation requests for the week between Christmas and New Year, but can only release 5 people.
It sets a rotation: employees are grouped into three groups, and each year a different group gets first choice for that week. The rotation is written into the policy and posted in September. The next December, the 5 approvals go to the group whose turn it is, and nobody argues over who asked first.
Not under federal law. The FLSA does not require payment for time not worked, such as vacations. Employer policy and state law set the rules.
Vacation hours are not hours worked, so they generally do not count toward the 40 hours that trigger overtime unless the employer’s policy says they do.
It depends on state law and the employer’s policy. Some states require payout of earned vacation at separation.
Usually hours taken times the regular hourly rate at the time the vacation is used.
Generally yes, based on business needs and the policy, unless a law or contract says otherwise. Apply the same rules to everyone.
Many employers can schedule vacation, such as during a plant shutdown, if the policy says so. Check state rules and give notice.
Employees request time off from their phone, managers approve or decline it, and every request keeps a dated record.