More than three-quarters of workers in the private sector have paid vacation benefits, according to the Bureau of Labor Statistics. Despite vacations and paid time off (PTO) being a common part of the American workplace, employers often have questions about these benefits. Below are several scenarios to test your knowledge of the rules and best practices. Choose the answer you think is right and then click to reveal the correct answer.
Question: What is PTO?
- Just a different way to say "vacation."
- Federal and/or state mandated Family and Medical Leave.
- Separate vacation, sick, and other types of leave benefits employers provide to their employees that must be used for those specific purposes.
- A benefit employers provide their employees in which they bundle vacation, personal, and other types of leave into a single bank that employees can use for any purpose.
D. A benefit employers provide their employees in which they bundle vacation, personal, and other types of leave into a single bank that employees can use for any purpose. Instead of having separate policies for vacation, sick, and other types of leave, many employers offer a single PTO policy under which employees can use accrued time off for any purpose. For example, an employer may offer 14 days of PTO per year that employees can use for any reason. Under this policy, one employee could use 10 days for a vacation, another three days when he or she gets the flu later in the year, and the remaining time off to care for his or her child, whose school was closed due to a snowstorm. Other employees could use the time differently.
Question: True or False: Some state and local laws require employers to provide paid vacations to employees?
- True
- False
B. False. No federal, state, or local law requires employers to offer paid vacations. Employers aren't obligated to provide paid vacations to employees unless they have promised otherwise, such as through a contract, agreement or policy.
Question: True or False: Employers should encourage employees to use their paid vacation time?
- True
- False
A. True. Vacation time gives employees time away from work to recharge, spend time with family and friends, and take care of personal responsibilities so that they can be more productive when they return to work. Have senior leadership set an example and consider use-it-or-lose it policies (where allowed) to encourage employees to use their time throughout the year.
Question: Which of the following statements is true about unused vacation and paid time off?
- No state requires employers to carry over accrued, unused vacation/PTO to the following year and pay employees for unused time at separation.
- Every state requires employers to carry over accrued, unused vacation/PTO to the following year and pay employees for unused time at separation.
- Some states require employers to carry over accrued, unused vacation/PTO to the following year and pay employees for unused time at separation.
C. Some states require employers to carry over accrued, unused vacation/PTO to the following year and pay employees for unused time at separation. Some states explicitly prohibit policies that force employees to forfeit accrued, unused vacation and other paid time off (also known as use-it-or-lose-it policies). In these cases, employers must generally allow employees to carry over accrued but unused PTO from year to year, or pay employees for the unused time at the end of the year. Similarly, in these states, employers are required to pay out any accrued, unused PTO at the time of separation.
States generally handle unused PTO in one of three ways:
- Expressly prohibit use-it-or-lose-it policies. These states require carryover from year to year and payout at separation;
- Permit use-it-or-lose-it policies but only if the employer has a written policy that explicitly states it will not carry over accrued, unused PTO to the following year and won't pay employees for accrued, unused time at separation; or
- Don't require employers to carry over accrued, unused PTO to the following year or pay employees for unused time at separation unless they have a policy that says otherwise.
Note: In some of the states that prohibit use-it-or-lose-it policies, a reasonable cap on accruals may be permitted. In such cases, employees have to "use" some of their time in order to earn any additional time.
Question: What are the advantages of a PTO policy rather than having separate banks for vacation, sick, and other types of personal leave?
- A PTO policy automatically exempts an employer from complying with any paid sick leave requirements.
- A PTO policy automatically exempts an employer from any carryover requirements under state law.
- A PTO policy gives workers more flexibility to use their leave to fit their needs, and it can ease the administrative burden of tracking precisely how the leave was used.
- All of the above.
C. A PTO policy gives workers more flexibility to use their leave to fit their needs, and it can ease the administrative burden of tracking precisely how the leave was used. For carryover purposes, many states treat PTO the same as they would vacation (see question above). Additionally, many jurisdictions allow employers to use PTO policies to comply with their sick leave requirements. However, employers must ensure their PTO policy aligns with, or is more generous than, the requirements of their sick leave law (such as allowing employees to use the same amount of leave for the same purposes and under the same conditions as required by the sick leave law and satisfying the accrual, carryover, and use requirements of the sick leave law).
Question: What is a potential disadvantage of having a PTO policy rather than separate banks for vacation, sick, and other types of leave?
- If the employer is in a jurisdiction that requires paid sick leave and pay out of unused PTO at the time of separation, the employer could face additional costs since payout isn't typically required under most paid sick leave laws.
- The employer may lose out on certain tax credits for employers that offer paid sick leave.
- If the employee runs out of PTO during the year and the employer is in a jurisdiction that requires paid sick leave, the employer must offer additional paid sick leave.
A. If the employer is in a jurisdiction that requires paid sick leave and the payout of unused PTO at the time of separation, the employer could face additional costs, since payout isn't typically required under most paid sick leave laws. Sick leave laws don't typically require that employers pay for unused sick leave when an employee leaves the company. However, if you use your PTO policy to meet sick leave requirements, in some states, such as California, you would be required to pay out all unused PTO at the time of separation. This could mean employers would face additional costs paying for unused sick time if they bundled their sick leave into their PTO plan rather than if they offered separate sick leave. In some states, this may also be true if the employer uses a vacation policy to satisfy the sick leave law.
As for employees who run out of PTO, no additional leave would be required under many paid sick leave laws as long as the PTO policy met the requirements of the employer's applicable paid sick leave law.
Note: Seattle's paid sick leave law requires employers with 250 or more full-time equivalent employees to provide more time off to employees if they maintain a PTO policy instead of a standalone sick leave policy (108 hours versus 72 hours).
Conclusion:
When drafting, implementing, and enforcing your paid time off policies, make sure you carefully review all requirements applicable to your business and consider related best practices.