6 considerations when drafting a PTO policy in California

In California, PTO is legally the same as vacation. An employee may use the time for any reason she or he likes, subject to notice and scheduling requirements. PTO, like vacation pay, also “vests” as it is earned/accrued over time and must be cashed out at termination.

Employers are turning increasingly toward PTO banks in lieu of separate vacation and sick leave policies. This might be because the administration is simpler, and it could also be because employees are requesting the change. Is your company considering a move to PTO? Here are 6 considerations for California employers drafting a PTO policy.

6 considerations when drafting a PTO policy in California

1. Who is eligible? This is a contractual benefit, so the employer can decide who is and who is not eligible. Full time employees? Part time employees? Commissioned employees? Employees out on leave? The employer can decide. No matter what decision is taken, be sure to spell it out very clearly in the policy.It’s even permissible to define full time and part time status specifically for the purposes of this PTO policy—and that definition may be different from other policies. Employers can also define the PTO benefit differently for different groups. For example, executives or individuals who have been at the company for a certain number of years might accrue PTO at a different rate than new hires. Differentiating in this way is perfectly legal, as long as it cannot be construed as discriminatory against protected groups.
2. Will there be a waiting period before the accrual begins? This is also perfectly legal. “Bottom line is this: PTO is essentially a matter of contract, with the legal limitations that it vests as it is earned and cannot be forfeited . . . you, the employer, can decide when the employee is to begin to earn their vacation. You can decide when they can take their vacation or PTO as far as scheduling goes—it is your prerogative.” Marc Jacuzzi explained in a recent CER webinar. For example, the employer can state that PTO begins to accrue after the employee has been with the company for 13 months.
3. How will PTO accrue? Will PTO accrue as time (which is the most common) or as dollars? Either way, state the rate of accrual and that it is based on time worked, and be specific. State whether it accrues by the hour, day, week, or month. If PTO accrues based on hours worked, does that include overtime hours? Again, be specific. Note whether it will be pro-rated under any circumstances (and what those circumstances are. Don’t forget to take local ordinances into account). “However you decide to do it, you want to make sure that you are clear and that you’re stating the rate and that you’re giving examples.” Jacuzzi advised.
4. Is a limitation on accrual desirable?While “use it or lose it” policies are unlawful, accrual caps are lawful. Here’s a policy example: “PTO accrual is capped at 150 percent of the annual PTO accrual rate. If the employee’s earned but unused PTO reaches the maximum, the employee will not accrue any additional PTO until the employee uses PTO such that the accrued balance falls below the cap. At that time, the employee will resume accruing PTO.For example, if the employee earns PTO at the rate of 10 days per year, his/her accrual is capped if s/he reaches an accrual balance of 15 days.” If you have an accrual cap, be sure to include whether there is an option to cash out (and how often).
5. What will be the increments for use? Full days? Half days? Hours? Minutes? Consider how this may apply differently to exempt and non-exempt employees. (Exempt employees are not paid based on hours worked and cannot have their salary deducted for working less than a full day. However, the employer can deduct from their PTO bank while still paying them full salary.)
6. Consider scheduling restrictions.Except in the case of illness, do you need a certain amount of advance notice for scheduling? Whose approval is necessary? When would you need a doctor’s note to curb abuse of unscheduled time off? Are there limitations on the amount of time that can be taken consecutively? Are there certain periods of time which will be blacked out and during which PTO cannot be scheduled? Is there a minimum number of days that must be taken as a block?

The above information is excerpted from the webinar “PTO in California: Practical Pointers on Administering Leave Donation Banks, Curbing Abuse, Reducing Absenteeism, and More.” To register for a future webinar, visit CER webinars.

Marc L. Jacuzzi, Esq., is a shareholder in the law firm of Simpson, Garrity, Innes & Jacuzzi. He advises clients regarding all aspects of the employer/employee relationship including hiring and termination, wage and hour requirements, employee classification, civil rights and discrimination issues, employee investigations, commission plans, employment contracts, employee handbooks and policies, confidential information agreements, reductions in force, leaves of absence, employment audits, M&A employment issues, violence in the workplace, and international employment issues.