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Vacation Pay

Last updated 29th Nov 2022


The term vacation pay refers to a benefit that allows an employee to take a day off from work and receive compensation. The terms and conditions of a company's vacation pay program are typically outlined in a policy statement or a collective bargaining agreement.


While federal laws such as the Fair Labor Standards Act do not require employers to compensate employees when they are not working, many employers do provide their full-time employees with vacation pay. A collective bargaining agreement will outline this benefit for unionized workers, while a policy statement may apply to non-represented employees.

Within these agreements companies may place restrictions on the use of vacation days, for example:

  • An employee may have to return to work from certain absences, such as an illness, before they can use a vacation day.
  • The use of vacation days may be restricted when the company is experiencing a heavy workload.
  • To ensure a department has adequate coverage, a vacation day may need to be pre-approved by the employee's manager or supervisor.
  • The number of consecutive days an employee can use vacation days may be limited to two weeks.
  • Vacation pay is typically accrued, which means a new employee may have to work a certain number of days or months before they are entitled to this benefit.

The number of days an employee receives each year, referred to as their allotment or quota, is normally a function of the years of service with the company. For example, a new employee may be entitled to five vacation days, while an employee that has been with the company for 30 years might receive four weeks of vacation pay each year.

Related Terms

401(k) plan, disability insurance, COBRA, absenteeism, flexible benefits plan, flexplace, flextime, floating holiday, paid breaks, mandatory employee benefits, phased retirement, prescription drug plan, relocation services

Moneyzine Editor

Moneyzine Editor