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By Leora Kirk, Human Resources Services Manager

graphic that reads "compliance alert"Section 626, Cessation of Employment, was amended by P.L. 2022 CH 561, to address circumstances in which vacation must be paid out at the end of employment. The amendment, which was signed by Gov. Mills in April 2022, stated that “[a]ll unused paid vacation accrued pursuant to the employer’s vacation policy on and after January 1, 2023 must be paid to the employee on cessation of employment.”

This raised a number of questions, including the impact of the amendment on Maine Earned Paid Leave, as well as other time off benefits offered by employers, such as PTO (Paid Time Off) benefits, which we will address here.

Who does this amendment apply to? 

The amended language applies only to private employers of 11 or more employees. In determining employee count, Department of Labor Wage and Hour Division counts only employee who work in Maine. This may be interpreted to mean that remote employees working outside of the state of Maine are not counted in the total count. As an example, Wage & Hour provides the scenario where an employer has six employees who work in Maine and six who work in NH. Wage and Hour would consider this employer as having 10 or fewer employees for the purpose of this amendment.

Payment of accrued vacation time at termination

The amendment does not obligate employers to allow employees to accrue vacation, but if the employer’s policy does establish accruals of vacation, employees must be paid in full for any accrued and unused vacation at the time of separation. Although any vacation accrued prior to January 1st, 2023 is not covered by the amended language, if prior to that date it was the employer’s established practice or policy to pay out accrued vacation at end of employment, the employer is still obliged to do so.

Implication of amendment to Maine Earned Paid Leave

The statue does not require payout of any leave time other than vacation. If an employer has separate vacation and Maine EPL policies, Maine EPL would not be impacted by the requirements to pay out accrued vacation time at separation. However, if the employer uses their vacation policy to meet accrual requirements under Maine EPL, accrued time would need to be paid out at separation.

Implication of amendment to other paid time off policies such as PTO

The guidance issued clarifies that the statue does not obligate employers to pay for any leave time other than vacation.

The interpretive guide addresses additional issues under their FAQ section, for example:

What does it mean for vacation to be “accrued?

Wage & Hour considers vacation time to be accrued if the employee has a defined amount of time that is available o them at any given time. This may include accruals per hours worked, per pay period, month, or other accrual systems.

Is “front-loaded” vacation considered to be accrued?

Wage & Hour considers front-loaded time to mean vacation that is credited to an employee all at once for a set period of time (typically a calendar or fiscal year). If the policy states that employees are credited with vacation as an advance against future accruals, the employer will be obligated to pay out all unused vacation which would have accrued at the time of separation; the employer is not obligated to pay out for unused vacation which would not yet have been accrued. Employers may still make deductions of time taken which has yet to accrue from the employee’s last paycheck.

In the absence of a policy clarifying that front-loaded vacation is advanced against future accruals, Wage & Hour will presume that front-loaded vacation is provided to employees in full and the full amount is credited to the employee at the beginning of the predetermined period. The full amount credited and unused would then be subject to payout at termination.

Are unlimited “take as you need” vacation policies considered accrued?

Unlimited vacation may be considered accrued if the employee has a defined amount of time that is available to them at any given time.

Find the full FAQ here.

KMA recommends that all employers have clear written policy which addresses paid time off policies and payout procedures at termination. If you require additional guidance on labor laws, or HR policy and management, compensation or recruiting, please reach out to the team at KMA today.