Vacation payout on cessation of employment

STATE OF MAINE
DEPARTMENT OF LABOR
BUREAU OF LABOR STANDARDS
45 STATE HOUSE STATION
AUGUSTA, MAINE 04333-0045

JANET T. MILLS, GOVERNOR
LAURA A. FORTMAN, COMMISSIONER
MICHAEL ROLAND, DIRECTOR

Bureau of Labor Standards, Wage and Hour Division
Interpretive Guidance Policy 22-01

Issued on: September 20, 2022

Subject: 26 M.R.S. 626 – Cessation of Employment

Purpose: This interpretive guidance addresses legislative changes to section 626 and its interaction with other parts of Chapter 7, including earned paid leave. This document is intended to guide MDOL staff, employees and employers in understanding the Wage and Hour Division's ("WHD") interpretation of the relevant statutes and rules for the purposes of statutory enforcement.

Background: Section 626, Cessation of Employment, was amended by P.L. 2022 Ch. 561, to address the circumstances in which vacation must be paid out on cessation of employment. This has raised a number of interpretive questions, including about the interaction with section 637, Earned Paid Leave and its related rules, 12-170 ch. 18.

Policy: At the outset, WHD notes what has not changed about section 626. First, this section applies only when "the terms of employment or the employer's established practice includes provision for paid vacations[.]" The amended language applies only to private employers of 11 or more employees. Public employer is defined in the statute. However, in determining the application of the statute to private employers, WHD counts only employees who work in Maine. For example, if an employer has six workers in Maine and six workers in New Hampshire, WHD would consider this employer as having 10 or fewer employees for the purposes of section 626.

Second, section 626 does not obligate employers to allow employees to accrue vacation. What has changed is that if a covered employer's policy or established practice does allow employees to accrue vacation, each employee must be paid for all unused, accrued vacation at the time of separation. The statute obligates covered employers to pay employees "vacation accrued pursuant to the employer's vacation policy on and after January 1, 2023." In investigating complaints, WHD will look to the employer's vacation policy to determine whether vacation is accrued and how. In the absence of a written policy, WHD will look to the employer's established practice. However, WHD strongly encourages employers to adopt a written vacation policy. Any vacation accrued prior to January 1, 2023 is not covered by the amended statutory language – however, if prior to that date, it was the employer's established practice or policy to pay accrued vacation on cessation of employment, the employer is still obligated to do so.

The statute does not obligate employers to pay for any leave time other than vacation. Pursuant to the Earned Paid Leave rules, 12-170 ch. 18, section III(E), "Whenever the terms of employment or the employer's established practice includes provisions to pay the balance of unused earned paid leave at the time of separation, earned paid leave on cessation of employment has the same status as wages earned in accordance with 26 MRS §626." Employers may have separate vacation and earned paid leave policies. If an employer has no earned paid leave policy but has a policy or practice of paying out vacation, WHD will consider the employer's policy or practice to cover earned paid leave as well.

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