Payment of Accrued But Unused Vacation Pay

Case of MoneyThe Connecticut rules for payment of accrued but unused vacation pay when employment terminates are fairly simple, but a brief refresher may be helpful to employers.

Connecticut General Statutes § 31-71f requires employers to provide employees with a written statement of employment policies and practices, including vacation pay.  Connecticut General Statutes § 31-76k, which is entitled “Payment of Fringe Benefits Upon Termination of Employment,” provides that employees shall be compensated in the form of wages for accrued fringe benefits, such as paid vacation, “if an employer policy or collective bargaining agreement provides for the payment of accrued fringe benefits upon termination.”  The sum of these two statutes means that there is no mandatory requirement to pay accrued but unused vacation.  The employer’s policy controls, and the policy may provide that accrued but unused vacation is simply forfeited, or is payable only under certain conditions.

Consistent with the statute, the Connecticut Department of Labor will enforce an unpaid wage claim based on accrued vacation pay only if the employer has a policy providing for such payments upon termination of employment.  The DOL form for an unpaid wage claim has a category for “vacation pay upon termination” which states that the written policy on vacation pay must be provided.  Our experience has shown that the Department of Labor will construe ambiguities in vacation pay policies in favor of the employee.

“Use-it-or-lose-it” forfeiture policies are not prevalent, since most employers understand that the vacation accrual is viewed by their employees as an earned benefit.  Such policies also make it likely that an employee who is planning to resign will simply contrive to use up his or her vacation before giving notice.  More common are conditions upon the payment of accrued but unused vacation pay, such as advance notice of resignation, and no unexcused absences during the notice period.  With these conditions, the accrued vacation pay operates as an inducement to employees to provide advance notice and allow continuity of service.

Finally, employers who provide paid vacation, but have no written policy as to vacation pay that has accrued at the time of termination, may find that the Department of Labor will construe the lack of a policy as an acknowledgement that paid vacation was part of an employee’s overall compensation package, and must be paid out as wages if not previously used.  Employers should give some thought to the vacation pay policy that works best for them, and promulgate a clear written policy statement.

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