Authors: Attorney Elizabeth L. Spencer
Whether an employee is voluntarily leaving employment or an employer is terminating an employees’ employment, questions may arise on what wages are due. One key question that may arise is how will unused vacation time be handled and how is it required to be handled by law.
While some states do require that unused vacation time be paid to a departing employee, Wisconsin is not one of those states. Under Wis. Stat. 109.01(3) vacation pay is considered wages to an employee. Generally, employers are not required to provide fringe benefits such as vacation pay nor are they required by law to pay employees for unused time upon termination. However, employers may be required to pay employees for unused vacation time based on an employment contract.
A disgruntled departing employee may file a claim with the Wisconsin Department of Workforce Development Wage and Hours Division if they feel that they are due compensation. According to the DWD “[g]enerally, IF the employer implemented a written vacation policy AND it does not include a written forfeit policy, THEN the employer must pay the employee for any earned, unused vacation pay” and recommends filing a Labor Standards Complaint. Such complaint must be filed within 2 years of when the wages were earned and payable. Wis. Stat. 109.09(1).
Proactively addressing the issue and setting clear guidelines provides assurance to both the employee and employer. Employers are best to protect themselves by having the topic of unused vacation time or PTO in either an employment contract or an employee handbook. If you have questions regarding your vacation time policy, employment contract, or employee handbook you should consider consulting an attorney to ensure that they are in compliance with state and federal law.