Unearned Vacation

Has anyone here allowed their employees to use vacation or pto time before it is actually earned? Were you able to recoup any of the money owed to the company if the employee separated before they earned that time back?


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  • In our policy, we state that the only way someone is allowed to go negative in their PTO bank (use it before it's earned) is if it is approved by the owner and a contract is signed stating they must pay it back if their employment is terminated prior to earning it.  We haven't had to do that yet though.
  • We allow employees to use vacation before it is earned since we also have a use or lose policy.  We don't want everyone to take the last 2-4 weeks of the year off because they were unable to do so before then.  All vacation requests are subject to manager approval, and we rarely have an issue where employees owe us back when they leave.
  • We don't allow negative paid time off banks: it creates too much heartache but that also partially reflects the fact that have a largely high turnover environment.
  • We administer our vacation plan a bit differently.  The employee starts a bank with a full years' vacation at 1/1. (New hires banks are prorated through the end of the year).  Employees are allowed to take time off as needed.  If one should terminate, we then calculate what should have been accrued from 1/1 'til termination date and subtract out used time. If it is negative, they get no vacation payout. If it is positive, they get the difference.

    We have very low turnover...usually only at the employer's request because this is such a great place to work.  Many times we also give severance payouts, so any used but unearned vacation time is taken into account when deciding the amount of severance.

    If you want to have a payback at termination policy, I would suggest getting the signature for the deduction every time they go negative rather than just have them sign a policy at new hire.  That way they are signing for a specific deduction...rather than some nebulous amount.

  • Good point - that's exactly what we do -  make them sign each time they go negative.  Guess I wasn't very clear about that so thanks for pointing that out HRforME, it's a key point!
  • Thanks for all the input. We're thinking about doing this, but didn't know how it would work out. A lot of states have different laws about the deductions they allow and whether or not you need signed written authorization from the employee to deduct it. We're also worried about not being to have all the money paid back (we have a higher turnover rate because of the nature of the business) and whether we would be able to have employees sign promissory notes for the rest of the amounts.
  • When you add in the fact that you have a high turnover rate, I would not suggest allowing negative balances. 

    First, because it sounds like it could be much more common (not just 1-2 per year) than what we have here.

    Second, you would definitely increase the liability of the company if the employee didn't work enough to have enough pay to cover the amount owed.

    Instead, I would suggest coming up with an unpaid timeoff policy for any timeoff the employee requests where there is no accrued time to pay.   If you want to allow negative balances, I would make the eligibility for it higher than your normal turnover length.  For example, the employee must have been with the company a full year and have worked x hours in the previous month.

  • Two years ago we revised our vacation policy, limiting the amount of time that could be carried over each year to 25% of the annual allotment based on years of service.  Since vacation is accrued on a per payperiod basis, it takes time to earn enough time to take a full 40 hour week off.  With limited carry over as of 1/1 each year, we anticipated negative employee reaction to the change, so the new policy now allows employees to "borrow" up to 40 hours with manager approval if they haven't earned enough time yet.  

     The employee fills out a request form and the dollar value of amount of time to be borrowed is calculated.  This form was approved by the CT DOL.  By signing the employee acknowledges that if they should separate employment for any reason, the balance due would be deducted from their final check.  By limiting the negative balance to 40 hours, the company would be able to recover any amount due.  We have had only one case that I know of where someone terminated with a negative balance of only a few hours and the amount was recovered from their last check.  Once employees adjusted to the new policy, it has been relatively problem free. 

  • Would you mind telling me a bit more about your PTO plan?  Are people allowed to carry over time each year or does everyone start 1/1 of each year with their standard annual amount?  If they are not able to carry over, do you pay them for unused time for the year?

     Thank you.


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