Treatment of unused vacation when leaving

[Finance Dave]

So, $16,500 went right to the 403b in a year in which I still had substantial residual income from payouts, last payroll check, and some transition issue consulting fees. Nice deduction for that year. So low was my income after the 403b contribution, deferred comp, etc, that I will actually be able to do some conversions or take some qualified income just to fill my 15% bracket.

We can put lump sums to the 401k, but only in the fall...I think November. So I'm not sure I can employ quite that strategy. However, I could increase my 401k percentage to the max...not sure what that is....and try to get as much in those first few months as I can to reduce taxable income. The good news is that since I'll only be working a partial year...income will drop quite a bit..so our marginal rate MIGHT go down (would have to see how far into the bracket we are currently).

 

[Buckeye]

At my last employer (defense contractor), I earned vacation monthly. Employees were authorized to use more than they had earned to date. Don't recall if one could use the total annual amount right away. If someone left prior to the end of the year and had used more hours than earned, the hours/$$'s would be deducted from the final check.

Seems like more companies would do it this way since it is to their benefit. Maybe it's an accounting nightmare and not worth the effort for most companies.

 

[scrabbler1]

At my last employer (defense contractor), I earned vacation monthly. Employees were authorized to use more than they had earned to date. Don't recall if one could use the total annual amount right away. If someone left prior to the end of the year and had used more hours than earned, the hours/$$'s would be deducted from the final check.

Seems like more companies would do it this way since it is to their benefit. Maybe it's an accounting nightmare and not worth the effort for most companies.

What you are describing is a lot like what my former company switched to a few years before I ERed. An employee who is eligible for paid time off (PTO) would accrue time monthly but could take more than his allotment in a given year. However, if that employee used more than his allotment then left the company before the end of the year, then that employee would be docked any overused time.

This system also enabled employees who started working for the company in the middle of the year some PTO time, unlike the hard cutoff dates for partial PTO time in place before that. For example, when I started working in 1985, I began in early July but it was after the cutoff for getting one week of VA so I got zero days of PTO (other than one floating holiday and a few company holidays) for my first 6 months. In theory, this inequity would even itself out if employees left the company midyear and cashed out all their remaining days. But I kinda got shortchanged at both ends, until my company mysteriously paid me out for some unused PTO time in 2008 I did not know I even had!

 

[pb4uski]

That is a very generous policy to credit it all on Jan 1.

Where I w*#k we accrue 13.3 hours of vacation each month and your balance is cumulative accrued - cumulative used (subject to a cap of 172 hours). You can have a negative vacation balance of up to 40 hours. When you leave you get your balance in your last paycheck (if negative they take it out).

 

[Meadbh]

GAAP (Generally Accepted Accounting Practices) requires that the company account for empoyees' vacation time as compensated absences. The company has to pay you for your unused vacation, OR they have to have a policy that requires you to take it. That was the case at my last organization.

U.S. GAAP, Generally Accepted Accounting Principles

Expenses are recognized in the period when employees provide services to be qualified for compensated absences.

If employees did not use all of such compensated absences a liability is accrued for unused portion.

Liability is accrued when all of the following conditions are met:

a. Services already rendered (by employees)
b. Rights that vest or accumulate
c. Payment is probable
d. Amount can be reasonably estimated.

Vested rights not contingent on an employee's future service should be paid when an employee leaves.

 

[GregLee]

I didn't get any allowance for vacation pay, but I did get an allowance for sick pay. I don't know how much, since I was never sick. However, it accumulated and has increased my DB retirement pay. After 39 years, the sick pay allowance added up to (as best I can tell) $200 extra per month for my retirement wage. A nice little bonus for being healthy enough to always show up for work all those years (not that anyone would have noticed, probably, if I hadn't).

 

[Brett_Cameron]

I got paid for my unused vacation when I retired. My plan was to use all of the vacation before I retired since the vacation taken adds to the years of service and would make my DB pension a little higher. After I had given notice of intention to retire, they asked me to be on a special project that interested me so I did not take about two weeks vacation and got paid for it instead. Worked out great. Last paycheck was on Thursday, on Friday got my first pension check and two weeks later got a check for vacation. Sweet deal.

 

[Alan]

When I put in for ER on the anniversary of my 25th year of employment, HR told me that if I delayed it one day I'd get an extra 5 days pay as I qualified for an extra 5 days vacation after 25 years. Naturally I delayed my long anticipated ER by an extra day

 

[Finance Dave]

thanks everyone, great comments.

Alan, nice little "bonus" there are the end.