Understanding Vacation and Paid Time Off Laws

One of the benefits of running your own business is the power to set policy. From the hours of operation to the color of your logo, it’s all your call. But when it comes to vacation, sick time and paid time off for employees, policy isn’t always yours to set. What can – or can’t – you control? We’ll help you find out.

Vacation Time

Employers are under no federal or state obligation to provide vacation or paid time off benefits to employees. But if you do offer paid vacation, some states consider it – and protect it – like wages, so be sure to check regulations. A good place to start is the United States Department of Labor.

No matter what vacation policy you set, most states require you to clearly communicate it to employees in writing or by posting it prominently.

Sick Time

There are no federal laws requiring businesses to provide paid time off due to illness unless you employ 50 or more, in which case the Family and Medical Leave Act (FMLA) grants certain protections to employees. Some state laws provide similar protections even if your business employs less than 50. For an overview of federal and state guidelines, look here.

While absence due to illness is a business fact of life, a proactive policy toward wellness can significantly reduce it. The Wall Street Journal shows small businesses how to set up a simple and effective wellness plan here.


While federal and state governments recognize several holidays, neither require businesses to grant paid time off for them or to pay employees more for working holidays unless the time exceeds standards, like the 40-hour work week.

As a business owner, you’re free to set a holiday policy that fits your business. When you do, keep in mind that holidays off are a great employee morale booster. On the flip side, if your business revolves around a holiday, a policy that ensures you have the coverage you need to address demand is key.

Keep Employees Informed

While vacation, sick days and holidays are usually addressed when an employee starts a job, an employee handbook that clearly outlines policies is essential for any business. Tips on creating one are available from SCORE.

The laws governing employee time off have been evolving since the beginning of modern labor. The more aware you are about what is required as an employer, the better equipped and transparent you can be with your employees.

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