HR Q and A: How to Structure a Vacation Policy?

Question from a Small Business Owner:

We are reconsidering our “use it or lose it” vacation policy and I’m reaching out to you to see what you recommend. Currently, our accrued vacation wipes to zero on December 31, which makes it impossible to take paid vacation days in the month of January. My recommendation is that we allow a capped amount of days (e.g., up to 5) to be rolled over into the following calendar year.

Do you have a sense of how other small-staffed organizations deal with this? Is there a more popular/typical way that you are seeing?


Answer from Employers Advantage:

You can approach this one of two ways:

  1. As you noted, allow for a certain number of carryover days each year and then put a “use by date”. For example, employees can carry over up to 5 days but they must be used by February 15th or they are forfeited.
  2. Front load all or a portion of their vacation accrual at the beginning of each year and then if they go over their accrued amount at time of separation, you can either have them “pay that back” through payroll deduction or you can let it go as a cost of business.

Obviously the 2nd option carries a little risk should someone leave and be in the negative with their vacation time use.

If you find that most employees don’t use all of their vacation each year, I would recommend option number 1. If people do use the majority of it, option number 2 would be more applicable.



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