What Happens To Unused Vacation Upon Termination

by Susan Martin

While most employers (95% in the St. Louis area) provide paid time off to their employees, what typically happens to the employees’ unused (but earned) vacation days when they leave the company? Do departing employees also say goodbye to their unused vacation days?

The Survey Says

According to a 2014 survey of 138 metro St. Louis businesses conducted by AAIM Employers’ Association, the reason for the termination determines the employer’s degree of generosity when awarding vacation payouts. In situations of a voluntary resignation, 95% of the survey respondents indicate payout of at least some unused vacation. However, the percentage drops to 84% when the departure is an involuntary discharge.  

Among employers that pay out unused vacation, 51% of the survey respondents pay out all unused vacation that’s been earned by the exiting employee, while the remaining employers pay only a certain portion.

Issues to Consider

Keep in mind that state laws may impact a company’s policy. Missouri does not have a statute mandating the payout of unused vacation upon termination; however, Illinois does require that employees be paid for any earned, unused vacation time.

Several questions that you might consider when crafting a vacation pay policy for terminated employees are:

• When does a departing employee receive pay for unused vacation?

• Is vacation pay denied when employees are fired for theft?  Harassment? Disclosure of confidential information?  

• Can an employee give notice that he/she is quitting and use accrued vacation time during the notice period?

Susan Martin (susan.martin@aaimea.org) is member answer center coordinator for AAIM Employers’ Association, which helps Missouri and Illinois companies manage their people and processes.