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Vacation Pay When Employees Leave

When employees quit or are terminated, what happens with their vacation pay often creates an issue for employers.  In Indiana, vacation pay is subject to the Wage Payment Statute.  This means that employees are entitled to be paid for any accrued, but unused vacation time unless employers have a written policy to the contrary.  If employers do not have such a policy and fail to pay vacation upon separation from employment, employers can be subject to claims for treble damages, costs and attorney’s fees.   Consequently, a well-drafted vacation policy can save employers time and litigation expense down the road.  The policy must be publicized to employees and should address how long an employee must work before vacation is accrued, how vacation is awarded (for example, monthly, semi-monthly, or yearly), caps on how much vacation rolls over from year to year and how vacation is paid upon termination.  Employers who do not want to pay employees for unused accrued vacation upon termination must clearly state in the policy that vacation is an employee benefit, not a form of compensation, and that vacation will not be paid upon separation from employment.

For more information concerning vacation pay or other employment law issues, contact a member of the firm’s Labor & Employment Law Practice Team.