by Lisa Edison-Smith
Because of new legislation taking effect August 1, private-sector employers in North Dakota will find it easier to avoid paying out unused paid time off (PTO) or vacation time when employees quit.
Under the old law, an employer was required to pay a departing employee for any PTO or vacation time that was “available for the employee to use” at the time of separation. The old rule could be expensive for employers. For example, an employee who was entitled to 12 days of PTO per year and was eligible to take the entire 12 days at the time of her separation from employment was entitled to be paid for all 12 unused days, even if she quit on January 2. That was true even if the employer had a policy saying that PTO was “earned” at a rate of one day per month.
That expensive problem led many employers not to make PTO available for use until it was earned. That meant employers with strict policies weren’t required to pay a full year’s worth of PTO to employees who quit in January, but employees were unable to use PTO that would be earned later in the year until it was actually earned, creating a PTO dilemma.
The North Dakota Legislature’s action during the legislative session means that after August 1, an employer will no longer be required to compensate employees for unused PTO or vacation time “awarded” by the employer but not yet “earned” by the employee if the company has a written policy limiting PTO payouts upon termination.
The statute doesn’t define “awarded” or “earned,” but an employer with a carefully drafted policy could presumably “award” all PTO (or a portion of the amount earned for the year) in January but require that it be “earned” at a certain rate throughout the year. Under such a policy, employees could take PTO as needed, but the employer wouldn’t be stuck paying for unearned PTO at the time of termination.
For more information on North Dakota’s new PTO payout law, see the May issue of North Dakota Employment Law Letter.