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Yes, several of our readers have gone through this transition before. Beginning in January 2012, all vacation will be awarded annually on January 1 each year. In 2010, all vacation was awarded based on anniversary date (and will continue to be awarded by anniversary date.)

The year 2011 will be a transition year. On January 1, 2011 employees will receive a one-time adjustment in their vacation pay, prorated based on their anniversary date. That vacation can be used until December 31, 2011.

(Even if you normally have a use-it-or-lose-it vacation policy, the best practice would be to allow employees to use all vacation time awarded in 2010 and 2011 until December 31, 2011. In subsequent years, you can require the employees to use the vacation time the same calendar year, if that policy is legal in your state.)

On January 1, 2011 employees will be awarded prorated vacation based on the length of time between their 2010 anniversary date and December 31, 2010. In this way, the employees do not lose any vacation time — it is just awarded in January 2011 rather than later in the year on their anniversary date.

In a sense, under the current system, each employee is “paid” his or her vacation time on the employees anniversary date. On January 1, 2011 you will do a one-time adjustment to “pay” the employee the vacation time earned in 2010 between the anniversary date and December 31. From that point on, every employee will be awarded vacation time in January each year.  They will receive the same amount of vacation, it will just be awarded on a different date. Using this method, the employees will not lose any vacation time due to the transition.

You can figure the prorated vacation adjustment by multiplying 0.77 hours of vacation x the annual weeks of vacation x the number of weeks the employee worked, between his or her anniversary date and December 31, 2010= hours of vacation awarded on January 1, 2011.

To simplify examples, suppose every employee in your company receives 2 weeks of vacation per year.

Suppose you have an employee named Juanita whose anniversary date is July 2. On July 2, 2010, she was awarded 2 weeks of vacation. Between July 2, 2010 and December 31, 2010 Juanita works 26 weeks. Therefore, she is entitled to half of her annual vacation time, or 26/52 of her vacation time.  That is 0.77 x 2 weeks vacation x 26 weeks worked = 40 hours of vacation, or one week. On January 1, 2011 Juanita will be awarded an additional week of vacation. If she has not used any vacation yet, she will have 3 weeks of vacation that she can use by December 31, 2011.

Juanita worked 6 months or half the year between her anniversary and December 31, therefore she is entitled to 50% of her 2 weeks annual vacation awarded on January 1, 2011.

Suppose employee Ted has an anniversary date on October 1. On that date in 2010, he was awarded 2 weeks of vacation. Ted works 1/4 of the year or 13 weeks between October 1 and December 31, 2010. On January 1, 2011 Ted will receive a one-time adjustment of 25% of his annual vacation, or 2.5 days. That is 0.77 hours x 2 weeks annual vacation x 13 weeks worked = 20 additional hours of vacation that Ted is awarded on January 1, 2011.