Maine Requires Employers to Pay Out Unused Vacation and Increases Minimum Wage

In this article, you will learn more about Maine employment law changes requiring employers to pay out unused vacation payout and a minimum wage increase beginning January 1, 2023.

VACATION PAYOUT
Employers that have 11 or more employees will be required to pay out accrued but unused vacation time at the end of employment. This includes when an employer sells its business. The Maine Department of Labor (MDOL) will consider frontloaded vacation to be accrued unless your policy specifically says that frontloaded vacation is an advance against future accruals, in which case employers will still need to pay out a prorated amount. Vacation that was accrued before January 1, 2023, only has to be paid out if you had a policy or practice of paying out vacation at termination. Collective bargaining agreements can establish their own vacation payout requirements.

You might be wondering how this new requirement interacts with Maine’s earned paid leave law. The MDOL explains in guidance that the requirement to pay out unused vacation when an employee separates from employment only applies to vacation. Employers only have to pay out unused earned paid leave at the end of employment if they have a policy or practice of doing so.

The guidance also says that the MDOL will only enforce the vacation payout requirements for employers that have 11 or more employees in Maine. However, the law doesn’t limit the employee count to those in the state, so we recommend consulting with an employment attorney if you have fewer than 11 employees in Maine, but 11 or more total, and don’t plan on paying unused vacation upon separation of employment.

Finally, while the law and guidance use the word “vacation” and don’t address paid time off benefits by another name, like PTO, it would be safest to assume that any time that can be used for vacationing (other than earned paid leave) should get the same treatment. If you plan to deny payout because your benefit is called something other than “vacation,” we again recommend consulting with an employment attorney.

Action Item
If you have 11 or more employees, update your policy and procedures to ensure that accrued but unused vacation is paid out at termination.

MINIMUM WAGE
Statewide
The statewide minimum wage will increase to $13.80 per hour. The minimum salary threshold for salaried exempt executive, administrative, and professional employees will increase to $796.17 per week (which equals $41,400.84 per year).

The minimum base wage for tipped employees will increase to $6.90 per hour. For an employer to take a tip credit in Maine, an employee must make more than $175 per month in tips.

Portland
Portland’s minimum wage will increase to $14 per hour. The minimum base wage for tipped employees will be $7 per hour.

Rockland
Rockland’s minimum wage for employers that have 26 or more employees will increase to $14 per hour. The minimum base wage for tipped employees will be $7 per hour. Smaller employers may pay the state minimum wage.