When it comes to doing business in multiple countries, it’s important for both employers and employees to understand varying employment practices in different countries. For example, a recent report has found that the United States is the only advanced economy that does not require employers to provide paid vacation time. Such knowledge is important to have before considering employment with a company based in a foreign country or before starting a business that will have employees in a foreign country.
“No-Vacation Nation Revisited,” released earlier this year by the Center for Economic and Policy Research reviewed the international labor laws impacting paid vacation and holidays in 21 rich nations. The countries included 16 European countries, Australia, Canada, Japan, New Zealand, and the United States. As advanced economies, all these rich countries are members of the Organization for Economic Cooperation and Development.
The United States is the only advanced economy broadly lacking this employment incentive. Almost 1 in 4 Americans do not receive any paid vacation or paid holidays. In the United States, employees in most states have no statutory right to paid vacations.
California happens to be the major exception to this rule. As the California Department of Industrial Relations explains, “Under California law, earned vacation time is considered wages, and vacation time is earned, or vests, as labor is performed. For example, if an employee is entitled to two weeks (10 work days) of vacation per year, after six months of work he or she will have earned five days of vacation.”
The gap between paid time off in the United States and the rest of the world is even larger when legal holidays are included. U.S. law does not guarantee any paid holidays. Most countries with advanced economies provide between 5 and 13 paid holidays per year in addition to paid vacation days.
Despite not being a legal right of employees, many private companies in the United States do offer their employees paid vacation time. Still, the sum of the average paid vacation and paid holidays provided to workers in the private sector ― 16 in total ― would not meet the minimum required by law in 19 other advanced economies. The lack of paid vacation and paid holidays is particularly acute for low-wage workers, part-time workers, and for employees of small businesses.
If you work for a small business, you are less likely to have any paid vacation whatsoever – 69 percent – than those in medium and large establishments – 86 percent. In addition, only 49 percent of low-wage workers have paid vacation. This is a startlingly low number when compared to 90 percent rate for high-wage workers.
In contrast, workers in the European Union are legally guaranteed at least 20 paid vacation days per year, with 25 and even 30 or more days in some countries. Canada and Japan guarantee at least 10 days of paid vacation per year. Most other rich countries have also established legal rights to holiday compensation over and above paid vacation days.
“The United States is the only advanced economy in the world that does not guarantee its workers paid vacation days and paid holidays,” John Schmitt, senior economist and co-author of the report, explained in a statement to the press. “Relying on businesses to voluntarily provide paid leave just hasn’t worked… (and) It is striking that six years after we first looked at this topic absolutely nothing has changed. U.S. law and U.S. employer behavior still lags far behind the rest of the rich countries in the world.”
Although paid vacations is only one employment practice, it is an important one that makes a sharp distinction between the U.S. economy and the advanced economies of other wealthy nations. If you are considering setting up a business in the United States, such distinctions are important to understand. It is also important to understand that in the United States labor laws also vary by state and that some states, like California, can offer definitive deviations from the country’s overall normative practices.
Based in Orange County, California, the international tax team at LSL CPAs can help you navigate through the process of setting up a business in the United States. You can be guided from the initial business entity choice to complex taxation support down the line.