Providing Vacation and Sick Leave

If you offer paid time off for vacation and illness, create a sensible policy.

You may be surprised to learn that you are not legally required to provide paid vacation or sick leave to your employees (unless you do business in a handful of states, including Connecticut, California, or Massachusetts, or a city or locality with a similar law, such as the District of Columbia, San Francisco, or Seattle). You could choose to offer no paid leave, although a policy like this could make it tough to attract high-quality employees in a competitive market.

If you decide to adopt a policy that gives your employees paid vacation or sick time, here are some general considerations to keep in mind:

  • Apply the policy consistently to all employees. If you offer some employees a more attractive package than others, you are opening yourself up to claims of unfair treatment and inviting morale problems.
  • Require employees to schedule leave in advance, if possible. Sometimes, an employee cannot know ahead of time that he or she will need time off -- for a sudden illness or family emergency, for example. In all other circumstances, however, you should ask employees to schedule leaves -- particularly vacations -- in advance. This will help you make sure your staffing needs are met, particularly during summers and holidays.
  • Adopt a sensible vacation accrual policy. Many of us enjoy taking a longer vacation from time to time, and a policy that allows employees to save up a long stretch of vacation time -- four weeks, say -- for this purpose is reasonable. You may want to put some cap on how much vacation time your employees can accrue or use at one time, however. Otherwise, you may suddenly have several employees asking for months off at a time. And until those employees take their long vacation, they may suffer job burn-out from years of work without time off.
  • Discourage misuse of sick leave. Some employees treat sick leave as an extra allotment of vacation days. Crack down by requiring employees to call in each day they are ill, requiring a doctor's note for serious illnesses, and monitoring patterns of sick leave use. Do you have employees who only seem to call in sick on Mondays and Fridays? Do some employees claim illness at the end of every year, in an effort to take advantage of unused sick time? Counsel these employees about proper use of sick leave and discipline those who abuse the system.
  • Consider what you will pay when an employee quits or is fired. If your policy allows paid leave to accrue, you must decide whether to pay out unused leave to departing employees. Some states, including California and Massachusetts, require payment of accrued vacation time when employment ends. Although you are generally not required to pay out unused sick days, some employers do pay out unused sick days, perhaps believing that this encourages employees not to misuse sick leave.
  • Paid family leave. In some states, including California and New Jersey, employees have a legal right to take some paid time off to care for family members, but employers don't have to chip in for this leave. It's paid out of the states' temporary disability programs, which are funded entirely by mandatory withholdings from employees' paychecks. (To learn more about California's program, go to the website of California's Employment Development Division,, and select "Paid Family Leave"; you can find information on New Jersey's program at the state's Department of Labor and Workforce Development website,; select "Family Leave Insurance.")

    For More Information

    Nolo's Create Your Own Employee Handbook: A Legal & Practical Guide, by Lisa Guerin and Amy DelPo, supplies sample vacation and sick leave policies that you can use as-is or tailor to meet your company's needs (and a CD-ROM allows you to cut and paste the policies into your own handbook).

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