Understanding an employer’s obligation regarding payout of vacation pay when an employee quits or is terminated can be very confusing, particularly when Paid Time Off (PTO) and Earned Benefit Time (EBT) is thrown in the mix. Each state has different laws, but we will focus in this post on Maine.
Maine does not require employers to provide paid vacation. However, if an employer offers it, any accrued and unused vacation pay must be paid out at the time of termination. But what happens if an employer combines vacation time, sick time, and other time off into either Earned Benefit Time or Paid Time Off? Again, the law is only concerned about the vacation time.
If you can separate the various time-off pieces, then the only obligation you would have is the vacation time. If, however, you cannot, you should look at the following:
- What does your policy say?
- What is your past practice? How have you handled it in the past?
If your policy and practice does not differentiate between the various time-off pieces and simply treats them all as “earned time,” then you have no obligation to payout at termination. Your accrual should also focus on the earned time without differentiating. And finally, you may also want to state that your “earned time has no value at separation.”
A well-written policy that includes these components and has been reviewed by counsel will minimize any confusion on how to handle this benefit at termination.
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