This is governed by law in the state where the employee works. Many states require the payout of any accrued but unused vacation pay at termination; these laws are generally found in each state's wage and hour laws, under the termination pay requirements.
Many states also prohibit employers from requiring the forfeiture of accrued vacation for current employees at the end of a year, commonly called use-it-or-lose-it policies. In such states, carry-over of accrued time or year-end payout must be allowed, but most will permit employers to cap the actual accrual of paid vacation time to limit employer liability. Employers will need to review each state's requirements in which they have employees to determine their compliance obligations.
Some states are silent on the issue of paying out accrued vacation pay at termination, and in that case, company policy will govern. Employers will want to create a clear policy on when accrued vacation time will be paid out and enforce it consistently.
Additionally, while most state laws use the term "vacation pay" in their regulations, the requirements will also apply to combined paid-time-off (PTO) plans; therefore, employers will not avoid their obligation to pay out accrued vacation pay by calling it a PTO plan. Stand-alone paid sick leave plans would be excluded, unless otherwise regulated.
A state may also regulate the rate at which accrued vacation pay must be paid, whether during employment or at termination. While most employers pay at the employee's current pay rate, some may choose to pay at the pay rate the employee was making at the time the paid time off was earned. California, for example, requires accrued vacation pay to be paid at the employee's current rate of pay. Employers will therefore want to check for any state requirements if they wish to pay out vacation at a rate below the employee's current rate.
An organization run by AI is not a futuristic concept. Such technology is already a part of many workplaces and will continue to shape the labor market and HR. Here's how employers and employees can successfully manage generative AI and other AI-powered systems.