An advisory from the Attorney General’s Fair Labor Division on Vacation Policies states that upon separation from employment, employees must be compensated for vacation time earned under an oral or written agreement.
Whether an employee’s employment ends for cause or not, that person is entitled to be paid for any earned, unused vacation time.
Be careful: An employer isn’t permitted to enter into an agreement which says the employee will forfeit his or her earned wages, including vacation payments. For example, the employee can’t agree to provide notice to the employer before quitting or else lose the payment of vacation time.
Regarding the accrual of vacation time, caps are allowed. That could mean the employer has a policy stating that after accruing a certain number of weeks of vacation leave, the employee will stop earning any additional vacation time until some of the accumulated vacation time has been used.
Likewise, a “use it or lose it” method for limiting vacation time accrual is also allowed. This type of policy would require employees to use all their accumulated vacation time within a certain time period, or else they’d lose part or all of it. A “carryover” policy allows employees to keep a certain number of hours after that time period has ended.
The bottom line when limiting vacation accrual is that employers must give adequate notice, and employees must have a reasonable opportunity to use the accumulated vacation time. Otherwise, a cap on accrual or a “use it or lose it” policy may result in the illegal forfeiture of earned wages.
Also bear in mind that employees who quit must be paid in full on the next regular payday or, if there is no regular payday, by the first Saturday after they quit. However, employers are required to get paychecks ready more quickly in the case of involuntary terminations or layoffs – in such situations, employees must be paid in full on their last day of work.
Under normal circumstances, hourly employees must be paid every week or every other week. The deadline for paying employees is six or seven days after the pay period ends, depending on how many days an employee worked during one calendar week.