What is vacation pay?

Vacation pay (  also called paid leave ) is compensation  given to employees   when they take pre-approved time off from work. The purpose of vacation pay is to increase employee satisfaction and engagement while   reducing turnover rates.

 Vacation pay is not required under  federal or state law . However, if an employer offers paid vacation as a benefit, their policy must comply with applicable state laws. Additionally, a collective bargaining agreement may govern vacation pay in a unionized workplace.

Why do companies give leave allowance?

 Vacation pay gives companies a competitive edge by increasing  employee satisfaction rates :

• Helping employees feel well-rested and more alert, even after vacation
• Reducing the need to take last-minute leave by allowing employees to schedule leave ahead of time
•  reducing the amount of sick leave by promoting physical and mental health 
• Boosting company morale

In fact, job seekers often expect holiday benefits and if they don’t receive holiday pay they will likely look for a job elsewhere.

Most companies include vacation pay in their overall PTO policy, but some provide an additional stipend for travel. For example, at HRMantra, we   offer “ paid ” vacation to all of our employees. We do this for several reasons:

• Improve overall employee well-being
• Providing a better work/life balance to your employees 
•  Achieve better  employee engagement and loyalty
• Increase the productivity of our employees
• Use it as a valuable recruiting advantage

How does vacation pay work?

Although paid vacation is not mandatory in the US, there are rules that most companies follow. A typical company policy includes the following:

• Who is eligible for holiday pay (e.g., full-time employees, part-time employees, contractors, etc.)
• Compensation rate (vacation pay rates are typically equal to the employee's hourly rate)
• Accrual of vacation days
• Limit on the total number of vacation days
• Roll-over or use-it-or-lose-it approach
• Process for requesting paid leave
• Payment of unused vacation days upon termination of service of the employee

Keep in mind:  Employers reserve the right to deny requests for paid time off, provided they do so in accordance with company policy.

Is holiday pay the same as regular pay?

Holiday pay is different from regular pay - and  the FLSA  does not require pay for holidays. It is an optional benefit that companies may choose to offer.  For IRS reporting purposes, holiday pay   is treated the same as  salary .

Because holiday pay is optional, it doesn't need to be equal to the employee's regular pay (as long as it follows company policy). However, most PTO programs compensate employees at their normal hourly rates.

Is PTO the same as holiday pay?

Vacation pay is a type of PTO that is only used for pre-approved holidays or time away from work. In contrast, PTO can be used to cover time for illness, injury, jury duty, doctor's appointments, and vacations.

Some employers provide general PTO hours, which can be used for vacation or sick days. Providing a single bank of PTO leave discourages call-outs because employees will have fewer vacation days left over from missing time from work.

Other businesses have separate sickness and leave banks, which is more beneficial for employees as they do not have to lose the opportunity to take leave due to illness or injury.

If your company only offers PTO, it's easier to track time-off usage. However, if you offer both sick time and vacation time, you can collect more data about absenteeism and other employee performance metrics.