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Small business advocates worry about costs, confusion with Maine’s new paid vacation time policy

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A law related to pay for vacation time at the end of employment that was enacted in April has the potential to cause confusion and raise costs for some businesses in the state.

Gov. Janet Mills signed LD 225 into law on April 7. At the cessation of employment, the law requires employers to pay departing employees “all unused paid vacation accrued pursuant to the employer’s vacation policy on or after January 1, 2023.” 

LD 225 does not apply to businesses with 10 or fewer employees, public sector employers, or employees governed by a collective bargaining agreement. The law does not distinguish between employees who choose to leave their jobs and those who are fired. 

Prior to LD 225 becoming law, if a person’s terms of employment included provisions for paid vacation, it had the same status as earned wages. 

LD 225 conflicts with the state’s earned paid leave law, which Mills signed on May 28, 2019 and which went into effect on January 1, 2021. LD 369, the bill mandating earned paid leave, requires private employers with 10 or more employees to provide one hour of paid leave for every 40 hours an individual works. The law caps earned paid leave at 40 hours per year and does not require an employer to permit its use until an employee has worked for 120 days in a one-year period. 

The law also requires that an employee using paid leave must be paid the same base rate of pay as he or she received immediately before taking leave. Barring an emergency, paid leave must be scheduled so as not to burden an employer and the use of paid leave cannot result in the loss of benefits accrued prior to the beginning of leave. 

Employes can carry up to 40 hours of paid leave from one year to the next. Under the law, when employees leave a job, employers that allow workers to use earned paid leave that is accrued can withhold that amount from the employee’s final paycheck.

Both the earned paid leave law and the new law requiring employees be paid for unused vacation time rely on Title 26 of the Maine Revised Statutes. 

Peter Gore of the Maine State Chamber of Commerce noted this in testimony offered against the bill during its public hearing. 

“Current DOL rules rely on this same section of Maine law when it comes to cashing out any unused, but accrued leave. In other words, if an employer’s workplace policy or employment agreement allows the cashing out of unused vacation time, it also allows for the cash out of unused earned paid leave time. However, if the employer’s policy does not allow such a cash out, then the employer is required to keep the unused/accrued leave on their books for a year, in case the employee returns to their former employer. LD 225 would supersede this, requiring the employee who returns to their previous employer, to begin the accrual process all over again. Thus bringing needless confusion and uncertainty to Maine small business,” Gore wrote in a letter submitted to the legislature’s Committee on Labor and Housing. 

Gore also noted that because the bill includes no provisions exempting employees let go because of fraud from the rule, a business could be “required to cash out an employee discharged for misconduct, including theft, assault, or any other violation or workplace policy, even if their policies say otherwise.”

Others in the business community are worried about the law’s potential to raise costs for employers. 

David Clough of the Maine chapter of the National Federation of Independent Businesses, which testified against the bill, said the organization is pleased the bill was amended to exempt employers with 10 or fewer employees. However, Clough expressed concern that “an unknown number of small employers with more than 10 employees may experience new cost burdens.”

Michael Roland, director of the Bureau of Labor Standards within the Maine DOL, testified neither for nor against the bill during its public hearing but did express concern about the vagueness of language within the bill.

“If the sponsor’s intent is to include in the payout requirement only paid leave designated by the employer as ‘vacation pay’, there is no problem. Such leave, however, may be variously designated as ‘paid time off’, ‘earned leave’, ‘personal time’, ‘benefit time’, etc., none of which would be covered by the statute as written. If the sponsor’s intent is to include all such leave in the payout requirement, then alternative language and a clear definition of what leave is intended to be covered will be necessary,” Roland wrote. 

Roland continued, noting that, in either case, the bill was likely to lead to an increase in the “already high number of inquiries” from workers and employers related to the statute the bill amends. Earlier in his testimony, Roland stated DOL had received 297 inquiries since January 2020. 

The DOL did not return a request for comment about how it plans to address concerns related to LD 225 or when a final rule to the law will be published.

With the passage of LD 225, Maine became one of a small handful of states in the nation with a statute treating unused vacation time as wages and specifically mandating its payout at the end of employment. Massachusetts is the only other state in New England with a similar law.

Photo: Zedmaster375, CC BY-SA 3.0 via Wikimedia Commons

About Katherine Revello

Katherine Revello is a reporter for The Maine Wire. She has degrees in journalism and political science from the University of Maine. Her writing has appeared in Reason, The Washington Examiner, and various other publications. Got news tips? Contact Katherine at krevello@mainepolicy.org.

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