One of the most common questions our Member Action Center gets is: Do I have to payout the paid time off my employee has earned if they quit or get fired? The answer is generally no since New Jersey law does not require employers to provide paid time off, nor does it say what to do if an employee does not use all of their time before they separate from the company. 

But, as an employer, that doesn’t mean you can just do whatever you want. Employers should have a clear policy on what happens with unused paid time off and apply it equally to all employees. Whether the policy is written (which is encouraged), or based on past practice, it needs to be applied consistently and uniformly. Failing to do so could result in a discrimination complaint. 

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Here’s what we mean by consistently and uniformly: If an employee handbook says employees will receive a bonus for unused vacation days, that bonus needs to be paid. Similarly, a use-it-or-lose-it policy needs to be uniformly enforced so that one employee isn’t allowed to carry over time while another loses it at the end of the year. 

Without a written policy, the employer is bound by how employees have been treated in the past. So, if the employer paid John when he left the company in March, Sue should also be paid when she leaves in September. Otherwise, Sue can claim she was discriminated against. 

What about cases when an employee is fired suddenly or quits with little notice leaving the employer high and dry? Many employers discourage this by including a written policy that requires at least two weeks’ notice for an employee to collect unused paid time off. Again, if nothing is written, the employer should typically look to what was done in the past for all employees regardless of how much notice was given.

Knowing how to treat unused paid time off can be tricky, so it’s important that employers understand the rules. A rash decision could result in bad blood, a complaint filed against an employer with the state, and a wage collection hearing. 

Need a deeper dive to understand this and other wage and hour issues? Attend our Defending Your Independent Contractor & Wage & Hour Decisions seminar on February 22 at the Hilton Garden Inn in Hamilton. For more information, or to register, click here

The information in this article is provided for informational purposes only, specific to New Jersey-based employers. The article does not constitute legal advice, nor has it been written or reviewed by an attorney.