We are looking at reducing the amount of vacation/PTO employees can accrue. Currently the limit is 200% (2 years) of our annual accrual. We would like to reduce it to 100% (1 year). I know if we abruptly reduced the maximum accrual we would be required to pay out the excess above the new maximum. However, if we phase in the reduction over 5-6 years I believe we can avoid such pay outs. The distinction is giving employees sufficient time to use the time needed to meet the new maximim accrual limits. Has anyone had experience doing this?

We are a municipal employer located in IL.

Thanks

I’m not sure of all the legalities, but if you are unionized, as many Illinois municipalities are, you will probably need to consider negotiating any changes to the policy within the confines of what is legal.

Jonathan addresses one important issue. If the employees are not represented by a bargaining unit, you can move forward carefully. The state law appears silent except for payout at termination. Check your policies for a contractual obligation. We’ve assisted a number of organizations, for-profit, not-for-profit, and public in reducing benefits and we expect more to come as state, county and city budgets tighten with declining revenues and funding. Taking a benefit away that has been promised or taking vacation away that has been earned will not be received well. Your approach is sound giving plenty of notice. The issue will be with how you “force” the use of leave to avoid the payout of the lost accrual. While you may be able to require forfeiture of unused leave over the cap each year, failing to payout the lost accrual or allowing the use of the “lost” leave will probably result in litigation. Involve your risk management and legal counsel.

Definitely look at collective bargaining and other contract/policy issues to ensure compliance.  Assuming no barriers, here are some options I’ve seen some private employers in California use to bring down vacation accruals (in California, “use it or lose it” vacation policies are unlawful).  Impact of these ideas for municipalities is different than for private employers so it’s important to work with your attorneys. 
1.  Pay out some portion of the accruals and require use of XX accrued time within XX years.  Work behind the scenes with management to create a program to give managers some tools and structure to help encourage people to schedule vacations.  Then, after XX years, pay out some more of the accruals above the cap and do the same thing again with a program to encourage vacation scheduling (or pay out the remaining accruals above the cap after XX years.)  Often times we could see that that management was a part of reason why their employees weren’t taking time off - employees were concerned about the impact on their jobs.  Managers were also concerned about the impact of vacation on their own jobs so the companies needed a program to address that cultural issue in order to bring down the accruals. 
2.  Roll out a rotating schedule of mandatory vacation for XX days at a time for non-exempt employees and full weeks for exempt employees (depending on application of FLSA and state labor laws for exempt employees).  Different groups of people/departments/job classifications will have different mandatory days/weeks off.  This is a slower approach that takes place over a course of a few years so that the impact of short term staffing decreases is minimized.  (For a municipality, this could look like a furlough, which could be perceived negatively.)
3.  Offer incentives to all employees to take vacation time, such as making arrangements with travel agencies, hotels, airlines, etc. to provide discount travel coupons/deals.

Just some thoughts.  Good luck.

Barrie Gross
Founder, Barrie Gross Consulting