More and more jurisdictions are passing laws requiring employers to provide paid leave to employees, and the COVID-19 pandemic has only accelerated this trend. When new laws are enacted, employers often have questions about the impact on their existing policies. Here are answers to some frequently asked questions on paid sick leave, vacation, and paid time off.

Q: Where is paid vacation required?

A: No federal, state, or local law requires employers to provide paid vacation. However, some jurisdictions have enacted laws requiring employers to provide paid leave that employees can use for any purpose, including vacation. For example, Maine requires employers with more than 10 employees to provide paid time off that can be used for any reason. Nevada has a similar law that applies to employers with 50 or more employees.

Despite the absence in laws requiring paid vacation, it remains one of the most common employee benefits. More than 90 percent of full-time employees receive paid vacation time, according to the Bureau of Labor Statistics (BLS). Providing paid vacation, and developing a culture that encourages employees to use their time, can help attract and retain employees and bolster productivity, particularly in these unprecedented times.

Q: Where is paid sick leave required?

A: Currently, the following jurisdictions require employers to provide paid sick leave to employees:

States:

Note:  In Nevada, employers with 50 or more employees must provide paid leave that employees may use for any reason. Since this Tip of the Week was published, New Mexico enacted a paid sick leave requirement, which takes effect July 1, 2022.

Other Jurisdictions:

• Chicago
• Cook County, Illinois
• District of Columbia
• Cities in California: Berkeley, Emeryville, Oakland, San Francisco, Santa Monica, San Diego, Long Beach (hotels with 100 or more rooms), and Los Angeles
• Cities in Minnesota: Duluth, Minneapolis, and St. Paul
• Montgomery County, Maryland
• New York City
• Cities in Pennsylvania: Philadelphia and Pittsburgh
• Cities in Washington: Seattle, Tacoma, and SeaTac (hospitality and transportation industries)

Note:  Since this Tip of the Week was published, Allegheny County (PA) enacted a paid sick leave requirement, which took effect December 15, 2021. West Hollywood (CA) also enacted a paid sick leave requirement, which takes effect January 1, 2022 for hotel workers and July 1, 2022 for other employees.

Q: Do we have to provide paid leave to employees if they miss work due to COVID-19?

A: Effective April 1, 2020, the Families First Coronavirus Response Act (FFCRA) required employers with fewer than 500 employees to provide emergency paid sick leave (up to 80 hours) and public health emergency leave (up to 12 weeks) to employees and established tax credits for employers that do so. The FFCRA's leave requirements expired on December 31, 2020. However, the tax credit portion of the law was extended through September 30, 2021 for employers that voluntarily offer either type of leave.

While the FFCRA's leave requirements ended, some states and local jurisdictions have stepped in with their own leave requirements. For instance, as of January 1, 2021, all Colorado employers must provide up to 80 hours of public health emergency leave to employees.  Also, some state and local jurisdictions require employers to provide paid leave for employees to receive a COVID-19 vaccination.

Keep in mind that states and local jurisdictions may have paid sick leave laws that were enacted prior to the pandemic (see the answer above) that may cover situations related to COVID-19. 

Even in the absence of a requirement to provide paid leave to employees for reasons related to COVID-19, many employers do so to encourage sick workers to stay home and prevent the spread of the illness.

Q: What is the difference between a paid vacation policy, paid sick leave policy, and a paid time off (PTO) policy?

A: 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, you 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 they get sick later in the year, and the remaining time off to care for their child, whose school was closed due to a snowstorm. Other employees may use the time differently to meet their specific needs and circumstances.

Q: Can I adopt a use-it-or-lose-it vacation policy?

A: Some states explicitly prohibit policies that force employees to forfeit accrued, unused vacation (also known as use-it-or-lose-it policies). In these cases, employers must generally allow employees to carry over accrued but unused vacation 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 vacation at the time of separation.

States generally handle unused vacation 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 vacation 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 vacation 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.

Q: My state requires me to provide paid sick leave to employees. Can I keep my current PTO policy?

A: Under many of the paid sick leave laws, if you have a PTO policy, you generally don't have to provide additional paid sick days to employees if the policy:

• Allows 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
• Satisfies the accrual, carry over, and use requirements of the sick leave law.

Check your applicable law to ensure compliance.

Note: State and local paid COVID-19 leave laws may have different rules.

Q: My state paid sick leave law allows me to provide leave through a PTO policy. One of my employees just requested sick leave, but they've exhausted all their PTO for the year on vacation. Do I have to offer additional paid leave to this employee?

A: Under many of the paid sick leave laws, no additional leave would be required if the PTO policy met the requirements listed in the answer above. When implementing your PTO policy, to help your employees manage their time off, clearly communicate what they can use PTO for, how it accrues, available balances, and the other requirements of your plan. Depending on the circumstances, the employee here may qualify for sick leave (typically unpaid) under a different law. For example, the federal Family and Medical Leave Act requires employers with 50 or more employees to provide unpaid leave to eligible employees for specified family, medical, and military reasons. Many states have similar laws that cover employers with fewer employees. Check your applicable laws to ensure compliance.

Note: The employee may also be entitled to paid COVID-19 leave under state and/or local law.

Q: What are some advantages and disadvantages of having a PTO policy instead of a standalone paid sick leave policy or vacation policy?

A: In general, PTO policies give workers more flexibility to use their leave to fit their needs. For employers with employees in multiple jurisdictions with differing paid sick leave requirements, a PTO policy can be an attractive option because a single policy (and the same amount of leave) can generally be offered across jurisdictions, provided it meets the requirements of the most generous paid sick leave law.

Another advantage of a PTO policy is that it can ease the administrative burden of tracking precisely how the leave was used. However, you should still familiarize yourself with your obligations under applicable paid sick leave laws, since many have specific recordkeeping requirements.

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 you would face additional costs paying for unused sick time if you bundled your sick leave into your PTO rather than if you 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.

Note: Seattle's paid sick leave law requires employers with 250 or more full-time equivalent employees to carry over more time off if they maintain a PTO policy instead of a standalone sick leave policy (108 hours versus 72 hours).

Conclusion:

Make sure your vacation, sick leave, COVID-19 leave, and PTO policies comply with applicable state and local laws.