Buying Vacation Time

Melita · July 2003

Employees' merit increases when into effect July 1. Consequently, the issue came up whether employees should be allowed to buy additional vacation time with their merit increase (opting for more vacation time versus receiving a merit increase). Do your employees have the option of buying additional vacation time with their increase? Can their pay be decreased (voluntarily) in order to pay for additional vacation time? Is there a limit to how much vacation time an employee can accrue? What issues do we need to be aware of, such as pay equity issues, tax implications? What are the pros and cons of such a program? Do you have a written policy? I would greatly appreciate any help you provide.

ray a · July 2003

We allow our ee's to purchase vacation, either 40 hours or 64 hours. It is not tied in with their increases and everyone across the board is eligible to participate. They sign up for the added vacation time in December for the coming year. We divide what they owe us for reimbursement by the 26 pay periods in the year then deduct that amount from their paycheck each pay period.

Recently, in lieu of a furlough, we offered to allow people to purchase an additional 40 hours of vacation as long as they took it during a specific 5 week period.

Yreka21 · September 2003

We are looking to add vacation purchase as a benefit. I have a couple of questions for Ray A or anyone else with specific info.

1) Are your ee's using pre-tax dollars to buy their vacation time?
2) If yes, what IRS reg allows employers to withhold at a pre-tax rate and then pay at a taxed rate for this benefit?

Thanks for your help -

HR in CA · September 2003

My former company had the vacation purchase program. It was post tax dollars. The payback was tied into a Economic Value Added bonus that hit the skids in 2000. So now the company is giving the employees the option to have payroll deductions or removing the purchased vacation.

ray a · September 2003

It is a pre-tax deduction, then tax is paid when the ee is paid at the time they take off the time. I'm not sure what IRS reg allows this - that part is handled by our finance department and was set up by our corporate headquarters.

Sue · September 2003

We discussed allowing employees to buy vacation and ended up with a simple plan to work with. It's called the Vacation Benefit Option. Employees are allowed to take an extra 5 days off, without pay. We don't have to fuss with adjusting 52 weeks of pay, they simply go without pay for that time. There aren't many strings attached, they just need to be employed for one year and have to place a request at least two weeks in advance with supervisory approval. About 25% of the employees take advantage of this.

We also allow employees who earn three weeks of vacation or more to sell one week back at year end, if it's unused.

Buying Vacation Time

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