Do you think that because your employee handbook specifically states that if your employee quits, they forfeit unused vacation time? Well, in New Mexico, depending on how you award your employees their time off, you could be wrong.
What is an Administrative Code?
The New Mexico Administrative Code states that vacation pay and other forms of pay for time that is not worked are included in the definition of ‘wages’ if such pay is compensation for labor or services rendered pursuant to the employer’s written policy, see NMAC 126.96.36.199(O). That means if your business awards time off on an accrual basis (hours of time off given based on time spent working), you may be obligated to pay the balance when an employee stops working for you. The logic is that an employer can’t “take back” something that has been earned, in much the same way an employer can’t take back money that they have already paid out in an employee’s paycheck for work they have completed. If paid time off in your company is somehow tied to how much your employees are working, then it is considered a “wage” that needs to be paid out once an employee terminates.
In all employee issues, the handbook does plays a vital role and I applaud you for managing your employees according to the policy outlined in your handbook. However, the handbook’s effectiveness in protecting you from employee complaints is only as good as how well the handbook’s policies follow the current labor law. I would recommend sitting down with a Human Resources Advisor to go over your paid time off policy, specifically how the time is calculated and allotted, to see if it aligns with Title 11. You can also reach out to the Department of Workforce Solutions for their take on the matter.
How do I ensure my employees take time off?
If you are, in fact, tying paid time off to hours worked, there are many ways to make sure your employees are taking their earned time off. First, ensure you are creating an environment where employees feel like they can take time off. It’s not enough to have a time off policy if your corporate culture and/or employee workload and coverage is not able to support it. Send reminders throughout the year to take time off and stress the importance of work-life balance. After all, study after study suggests that a well-rested and happy employee is a productive employee. Periodically review employee balances and send notification to the employee of those balances so they know exactly how much time they need to use before the end of the accrual period. Again, make sure the employees understand and feel like they not only have time off available, but the expectation is that it is used. This means lead by example. Let employees see you, the business owner, take vacations and days off here and there. If despite your best efforts you still have employees that won’t take their time off, appeal to their reasonable side. Explain that your budgets assume employees are taking time off; not that they take no time off and then reward themselves with a windfall of unused vacation pay on top.
How can a Human Resources Advisor help?
Another thing to consider is there are other ways to award time off to employees that are not tied to an accrual basis. Depending on your type of business and structure, you may have options that will not require you to pay out vacation time when an employee terminates. Again, it would be important to consult with a Human Resources Advisor for ideas. Remember, every business, every employee and every situation are different. It’s important to tailor a solution that best fits your situation.
Last, remember that labor laws and the interpretation of them change. A fantastic policy book from ten years ago may be out of date and full of policies that the law no longer supports. Make sure you are regularly “auditing” your employee policies and procedures manual. An employee handbook that doesn’t follow the law, won’t help you when the Department of Labor comes knocking at your door, no matter how closely you followed the policies within it.
Do you have concerns about employee management in general? Would you like to speak to an HR Advisor or Attorney with HR experience?
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