Q: My company offers floating holidays to employees. Can we have a “use it or lose it” policy for unused floating holidays? Do they have to be paid out at termination? What about personal days?
A. Like many wage and hour questions, the treatment of floating holidays and personal days is governed by state law. As explained in more detail below, in most states, treatment of floating holidays and personal days is governed by the employer’s policy. However, in California, treatment is governed by state law.
Many employers offer paid floating holidays and/or paid personal days to give employees flexibility to use them for religious holidays or special events, such as birthdays. Some employers allow employees to use floating holidays/personal days anytime during the year, while others tie their use to a specific event. For example, some employers provide a floating holiday upon an annual employment anniversary, and require that the holiday be used within a week of the anniversary. Under most employer policies, personal days can be used at any time during the year, subject to employer approval.
Most states, including New Jersey and Pennsylvania, allow for floating holidays and personal days to be governed by the employer’s written policies. If the employer’s policy states that unused floating holidays/personal days are forfeited at the end of the year, that policy governs. Likewise, an employer’s policy may provide that floating holidays and personal days will not be paid upon termination. In many cases, however, the lack of a written policy may be held against the employer, even if the employer’s practice is to require forfeiture and/or refuse payout at termination. In short, in most jurisdictions, the employer may set the rules for floating holidays, but the employer is well-advised to do so in a clear written policy.
In California, the type of floating holiday/personal day affects its treatment. The California Division of Labor Standards Enforcement has opined that leave time that is provided without condition is presumed to be vacation (and thus treated as wages) no matter what the employer calls the days off. Thus, floating holidays/personal days that can be used at any time are treated like vacation, which means that under California law, they cannot be forfeited (i.e. must roll over from year to year) and must be paid out upon termination. Floating holidays/personal days that are tied to a specific date (such as an employment anniversary, a birthday or the selection of one of a number of holidays) and must be used on or near that date, are not treated as vacation and therefore, under California law, they can be forfeited if not used and the employer does not have to pay the employee for the unused time upon termination.
Regardless of where they do business, employers should have clear written policies regarding treatment of floating holidays and personal days. Moreover, in California, employers who do not want floating holidays/personal days to roll over year-to-year or be paid out upon termination should revise their policies so that the time off is tied to a specific event or date, rather than allowing floating holidays or personal days that may be used for any reason.