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Employment Law Communiqué

What Employers and Employees Need to Know About Vacation Time Most employers today give employees some type of paid time off. This article will explore some universal truths regarding paid time off in Indiana and what employees and employers should know about it. The Status of the Controversial “No Match” Social Security Letters On August 15, 2007, the Department of Homeland Security issued final regulations that define what to do if an employer receives a “no-match” letter. These regulations were to take effect on September 15, 2007. However, a district judge issued an injunction which stopped the Department of Homeland Security from enforcing these regulations. Find out what the controversy is all about.

What Employers and Employees Need to Know About Vacation Time

Most employers today give employees some type of paid time off. Employers label this time "vacation," "PTO," "PDO," "benefit days" or simply "paid time off." For purposes of this article, we will refer to these types of paid time off days collectively as "vacation time." Vacation policies vary depending on the nature of the employer's business and the employer's business philosophy, but there are some "universal" truths regarding vacation time.

  • In Indiana, absent a contractual obligation to do so, employers do not have to give employees any type of vacation time. However, most employers give employees some type of vacation time under certain conditions, e.g., completion of a certain period of employment and the employee's full-time status. If an employer wants to give its employees vacation time, we recommend the employer have a written vacation policy which clearly sets forth the circumstances under which an employee will receive vacation pay. At a minimum, the policy should describe who will receive the vacation time, how the vacation time is calculated, when the vacation time is earned, and when the vacation time can be used.
  • Employers do not have to automatically pay an employee for unused vacation time upon termination of employment. If an employer has a written, distributed policy that clearly provides when an employee is not to receive unused, earned vacation time in the event an employee's employment is terminated, the employer may not have to pay out the unused vacation time. For example, an employer may state that employees will not receive pay for unused vacation time upon termination regardless of the reason for the employee's separation from employment. Or, the policy may state that there will be no compensation for unused vacation time if the employee was terminated for just cause. If the employee were terminated for just cause, then the employer would not have to compensate the employee for the unused vacation time. Employers need to be very careful if they choose not to compensate for unused vacation time upon termination and should have the policy reviewed by legal counsel to ensure that the policy complies with Indiana law.
  • If an employer's policy is silent about vacation payout on termination, the employee will be entitled to his/her unused vacation time upon termination of employment. How much time the employer will be responsible for is dependent on what the policy states and exactly how the employer calculates vacation time.
  • If an employer is required to pay for unused vacation time upon an employee's termination, the employer must compensate the employee for his or her unused vacation time by the next scheduled payday after the employee's termination. An employer cannot have a policy which extends the time to pay for the unused vacation time beyond the next scheduled payday. If an employer fails to pay the unused vacation time in accordance with Indiana Code §22-2-5-1, the employee may be entitled to treble damages and attorney's fees for the employer's failure to adhere to the statute.

No-Match Social Security Letters

On August 15, 2007, the Department of Homeland Security issued final regulations regarding "no-match" letters. A "no-match" letter is a letter that informs an employer that a W-2 has been submitted for its employee where the employee's name and social security number do not match Social Security Administration records. Prior to these new final regulations, when an employer received a no-match letter, the employer was required to investigate and, if applicable, correct the social security number. If the employer did nothing, in general, no penalties were assessed against the employer. However, with the issuance of these new final regulations, if an employee cannot fix the social security mismatch within ninety (90) days of the employer's receipt of the no-match letter, the employer must terminate the employee's employment. If the employer does nothing, the employer could face significant penalties. It is also important to note that the Department of Homeland Security has indicated its intention to vigorously enforce these new regulations.

The new final regulations were to go into effect on September 15, 2007. However, a lawsuit was filed to prevent the final regulations from taking effect. A federal judge recently barred enforcement of these final regulations until a hearing on the merits can be had. Until the judge decides this case, employers and employees are advised to seek legal counsel if they receive, or are asked about, one of these no-match letters.

If you have any questions about vacation time or payouts, or need legal assistance with regard to federal employment regulations, please contact Mallor Clendening Grodner & Bohrer LLP’s Labor and Employment Practice Group. 812-336-0200 www.mcgb.com

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The Bloomington, Indiana, law firm of Mallor Clendening Grodner & Bohrer LLP handles a wide range of legal issues and provides a lifetime of solutions to clients throughout Central and Southern Indiana including those from Monroe County and from cities and communities such as Bloomington, Evansville, Indianapolis, Bedford, Bloomfield, Franklin, Martinsville, French Lick, Paoli, Columbus, Spencer, Mooresville, and Seymour.