Sure they can. That's the way it works at my shop. If you're non-union, they can pretty much do anything they want. Such things are not gov't regulated. We get an attendance bonus every 3 months. Half of it gets ate up in taxes because it is part of a weekly check. Suks-
Employers have a right to do this because vacation pay is normally taxed. However, its rate of tax is different from that of your regular salary. Unused vacation pay is not taxed at supplemental rates.