Rules for Vacation Time for Salaried Personnel
Offering vacation time is a feasible way of attracting and retaining quality workers, however private-sector employers are not bound by law to provide it. Salaried employees who perform executive, managerial or nonmanual administrative tasks often receive paid vacation time in their compensation package. Though you may choose how much vacation time your salaried workers should get, some laws might apply to your policy.
The state may have specific rules that you must comply with to ensure the plan is established in an equitable manner. For example, in California, only a plan that is developed in a logical and fair manner is recognized as valid. For instance, a plan that gives employees no vacation in the first year, two weeks’ vacation in the second year and one week in the third year is invalid. However, a plan that gives no vacation in the initial year, two weeks in the second year and three weeks in the third year is valid. In Arizona, employers must adhere to the terms of the established policy and may create a "use-it-or-lose-it" leave system. Employees must use their accrued vacation by a certain time or lose it, provided you give them a reasonable chance to use the time.
Before you create vacation rules for salaried employees, determine whether they are exempt or nonexempt. Most salaried employees are exempt, which means they are excluded from the Fair Labor Standards Act’s overtime and minimum wage provisions. They are usually executive, professional or administrative employees who must receive at least $455 in salary per week, as of 2013. Nonexempt employees are not excluded from overtime and minimum wage provisions and are usually paid hourly. A salaried employee is nonexempt if she does not perform the job duties the FLSA requires for exempt status.
A salaried exempt vacation schedule might include two weeks of vacation up to the first four years of service. After four years, employees get three weeks. After nine years, they get four weeks. Or, they might accrue 240 hours per year for the first 25 years and 264 hours after 25 years. Conversely, a salaried nonexempt schedule may include 192 hours during the first ten years, 240 hours from 11 to 25 years and 264 hours after 26 or more years. It is not uncommon for executives to get more vacation time than other salaried employees. For example, an executive might get 25 days per year, while other salaried employees accrue up to 19 or 20 days per year. Part-time salaried employees generally receive prorated vacation, which is based on their time worked. Establish a time frame for when vacation starts, such as after the 90-day probationary period or after the first six months or year of employment.
Under the FLSA, you may reduce salary if an exempt employee has exhausted all of her accrued vacation time and takes a full day off from work. The state may require that you pay out accrued vacation time to terminated salaried and hourly employees regardless of how they left the company. Contact the state labor department for clarification on paying vacation when an employee terminates. The state might have strict rules concerning the deductions that can be made from final salary, including offsetting negative vacation balances. You might state in your policy that employees cannot carry over vacation leave balances into the next accrual period and must take unpaid leave for the unearned time taken.
To reduce vacation time issues, develop clear, written policies for salaried and hourly workers. This includes defining employees who are eligible for vacation such as full-time and part-time, vacation accrual rate, whether balances can be carried forward into the next accrual year, how vacation time is earned such as whether it be a monthly accrual or earned at the anniversary of hire and how unused vacation is handled upon termination.