A “use it or lose it” vacation policy sounds like just like it’s meaning. It’s a type of policy that requires an employee to use their earned vacation time by a specific date, or they completely lose the chance to use it at all.

There two types of “lose it or use it” policies commonly used by employers:

  1. An employee needs to use their earned vacation time before the end of the year or else they lose it (and it doesn’t roll over).
  2. An employee needs to use their earned vacation time within a specific time period or else they lose it.

Am I allowed to have lose it or lose it vacation policies?

Well, it really depends on your state. Many states think it’s fine to have use it or lose it policies. Some, however, don’t allow them at all. For example:

  • Employers generally have the right to set a date by which employees must take their earned vacation, but not in California, Montana, and Nebraska.
  • In California, Montana, and Nebraska, use it or lose it policies are forbidden. Accrued vacation days are treated the same as wages and cannot be taken away from employees under any circumstances. Colorado’s laws, while not an outright ban on “use it or lose it,” similarly prohibit employers from forcing employees to forfeit “earned” benefits.

Since these laws differ from state-to-state, be sure to check your state’s Department of Labor website.

Can I limit the number of vacation days my employees can roll over?

It depends on your state’s stance on “lose it or use it” policies.

  • If your state allows use it or lose it policies, then generally you can limit rollovers.
  • If your state does not allow use it or lose it policies, then no, you cannot limit the number of days your employees can roll over. This also includes unused PTO.

However, there’s always the payout option. As an employer, you can offer the option to pay an employee for their unused accrued vacation days at the end of the year. That way, you can limit the number of vacation days an employee can take within one year. Another common practice is to cap the number of vacation days an employee can accrue.

To learn more on common PTO policies, check out this article.

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