Do you use a paid time off (PTO) policy in lieu of separate vacation, sick leave, and other leave of absence policies? Doing so can have a lot of benefits, such as increased employee satisfaction and ease in administration. That said, it also comes with challenges.
For example, must all accrued PTO be paid out upon termination, even though some of it wouldn’t have been paid out when kept separate? Can employers reduce the total amount of leave an employee is entitled to when converting everything into a PTO bank? Can an employer create a PTO bank but still leave some types of leave to be administered separately?
These questions and more were addressed by Daniel B. Chammas during a recent BLR webinar.
Q. Can an employer take a current policy that pays out vacation upon termination and change it to a PTO policy that does not pay out upon termination?.
A.If your current policy says that you pay it out on termination, then currently you need to follow your policy. However, if you’re not in a state that requires this, then you can convert it. Depending on how your policy is worded, you’ll have to see whether you can convert existing accrued vacation or whether you’ll have to only do this for new accrual.
For example, if your current policy labels vacation time as accrued wages, you likely won’t be able to convert it for existing accrued amounts. It also depends on whether your policy is included in a contract. Those cannot be changed. When it’s a policy, the smarter option is to change it for accruals moving forward, not current accrued amounts. Check your state laws either way.
Q. Can we take our existing 3 banks of leave and combine it into one PTO bank, but give employees less total leave?
A.This depends on what state you’re in. Banks of leave matter if you’re paying them out when accrued and unused. In some states, making everything PTO means you’ll have to pay out the full accrued PTO bank upon termination. In other states, none of it must be paid out. In those cases, you can easily combine them and even decrease the total as long as you’re still providing all other legally-mandated leave.
The full answer here depends on what your existing policies are and what local laws you’re subject to. You probably have some flexibility, but check those things first – and keep anything that has to be paid out separate to keep that total as low as possible.
Q. Are there any limitations for employers implementing annual PTO carry-over caps?
A.No, there are no limitations on that. As long as your policy is clear and is distributed and gives fair warning, that will be the best way to keep vacation banks low.
Q. Can we accrue PTO during the first 3 months of employment, but not let the employee use it until they have been employed for that full 90 days? (In other words, it will accrue, but cannot be used until the end of the probationary period).
A.Yes, you can do that if this is your policy. If your policy says that, it can be enforced. It is up to the employer to allow employees to take vacation as they see fit. If the employer wants to, they are able to say to the employee what times are good for vacation and what are not. The employer has no obligation by law to let employees take vacation, but you must follow your own policy. The most a state will force you to do is to pay it out if the employee does not take it.
Q. Our policy is to give employees 19 PTO days after the first year of employment. However, we prorate the days behind the scenes. If the employee terminates and they’ve used more than the prorated amount, we take it out of the last paycheck. This is our written policy and employees sign off on it when hired. Is this okay?
A.This question relates to advancing vacation and whether or not you’re able to use the last paycheck to get paid back. The answer here depends on your state. Some states, like California, don’t let you do this—you cannot deduct something like this from the final paycheck and the employer must pursue it separately just like any other creditor who is owed money would. However, different states have different laws in this regard.
Check on local laws regarding allowed deductions from the final paycheck. What I would recommend in general is to let the PTO days accrue on a daily rate and don’t let employees take advance days—don’t just give the full 19 days at the beginning of the year and then prorate it after the fact for employees that terminate.
Q. Can we create a situation where we have PTO (instead of vacation), and the PTO bank includes both vacation and sick time, but we have separate banks for all other types of leave?
A.In the states with the most rigorous laws, the main catch is that you’ll be liable to pay out the full PTO bank as accrued wages if there are any accrued but unused days when the employee leaves. However, if the sick leave had been separate, it may not have been required to be paid out at that point, even in the states with the strictest laws that require all accrued vacation days to be treated as wages. It’s fine to do, and may be administratively easier, but this is the main risk.
Q. What if an exempt employee requests a half day off? Can they be paid via 4 hours of PTO?
A.Yes. If they request a half day off, you’re allowed to take that half day out of their PTO or vacation bank. They still get full pay, but some of their PTO is deducted.
For more information on setting up and administrating a PTO policy, order the webinar recording of “Mastering Everyday PTO Challenges: Curb Abuse, Cut Absenteeism, and Comply with the Law.” To register for a future webinar, visit http://store.blr.com/events/webinars.
Daniel B. Chammas, Esq., is a partner in the labor and employment practice group in Venable’s Los Angeles office. He has extensive experience defending employers in wage and hour class actions and other employment disputes, from actions for unpaid wages and sexual harassment claims to wrongful termination litigation and racial discrimination complaints.