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Maine law requires vacation payouts

Maine amends law to require vacation payouts

Changes are coming in Maine, as a law has been amended to require vacation payouts for certain employers. On April 7th, 2022, Governor Janet Mills signed “An Act Regarding the Treatment of Vacation Time upon the Cessation of Employment” into law. This act deals with how employers must handle unused vacation pay upon separation of employment. Let’s take a look at these changes.

What are the changes to the law?

Effective January 1st, 2023, this amendment requires employers with more than 10 employees to pay out any unused, accrued vacation time to employees upon separation from the company. State law requires employers to pay employees their final wages in full no later than the employee’s next payday. Unused, accrued vacation pay abides by the final wages ruling and must be paid out in the same manner. This law has no affect on business’ earned paid leave or paid time off policies.

Details of the new vacation payout law

  • These changes are effective January 1st, 2023.
  • This new requirement applies to all private businesses in Maine with more than 10 employees.
  • Unused, accrued vacation time must be paid out in full no later than the employee’s next payday.
  • Vacation time must be paid out regardless for the reason of separation.
  • The law states that this refers to vacation time only. Earned paid leave or paid time off policies are not affected by this requirement.
  • Exemptions from this new law are employers with 10 or less employees, public employers, and final wage vacation pay provisions governed by a collective bargaining agreement.

How should employers handle these changes?

Employers in Maine that are subject to these new requirements should make changes to their vacation processes and procedures. Updating or creating a policy to have in a company handbook is key to maintaining compliance. Also, be prepared financially to pay out any unused, accrued vacation time to employees upon separation of employment. Furthermore, employers who fail to comply with this law are subject to interest payments, fines and penalties.

Another way to navigate this compliance requirement is to change your vacation policy to either a paid time off or earned leave policy. This law states that only vacation time needs to be paid out upon cessation of employment. If your business has a earned paid leave or paid time off policy, then you are not required to pay out that time upon separation.

If you have any questions regarding these changes, please reach out to your payroll processor.