One of the key benefits that all employees expect is paid time off (“PTO”). PTO can come in a number of forms. Some employers may separate PTO according to its intended use (e.g., vacation vs. sick days), whereas other employers provide employees with a single aggregate amount of PTO to be used as the employee wishes. Regardless of the breakdown of PTO, there are a number of important issues that employers must take into account when developing, implementing and enforcing PTO policies. Before delving into these issues, it is important to understand that an employer’s PTO policy may be subject to state and/or local laws which mandate the specific methods by which PTO must be provided. Currently, ten (10) states and the District of Columbia have laws that require covered employers to provide employees with sick leave. Many of these laws address issues such as carryover and payment for unused PTO as well. Accordingly, before developing any PTO policy, it is important to check your state and local laws to ensure compliance. That being said, the following issues should be considered (subject to state and local law):
Earning/Using PTO. There are two (2) general methods by which an employee can “earn” PTO. The employee may receive a “bank” of PTO at the beginning of the employment year to be used when and as needed, subject to the employer’s policies regarding requests, scheduling, etc. Alternatively, and more typically, the employee accrues PTO at a pre-established rate throughout the employment year. Under this method, the employee is generally not permitted to use the PTO until he/she has earned it. However, some employers permit employees to “borrow” from the PTO that they expect to accrue in the future. In this instance, the employer runs the risk that the employee will be terminated prior to accruing the PTO which he/she has already used. In such instance, the employer will have to seek reimbursement from the employee for the excess PTO taken. While some states may allow employers to deduct this amount from the employee’s last paycheck, other states require specific employee authorization to do so.
Unused PTO. Some employees may not use all of the PTO earned by them in a given employment year. Employers must determine, and have a written policy, on whether and the extent to which such unused PTO can be carried over by or paid out to the employee. As addressed above, state/local law may govern whether the employer is required to permit the employee to carry over PTO, and/or whether the employer is required to pay the employee for unused PTO upon termination. Assuming that state/local law does not dictate otherwise, most employers provide that unused PTO is forfeited at the end of the year. Regardless of how employers treat unused PTO, it is critical that such policies are included in a contract or employee handbook to ensure that the employees know exactly what they are entitled to receive.
Requests for Unpaid Leave. Here is where employers run into the most trouble, especially when the employer provides a “bank” of PTO at the beginning of the year. An employee uses all of his/her PTO before the end of the employment year, but continues to request time off. In these instances, the employer must decide whether to permit the employee to take the additional time as unpaid leave. In some states, employers are required to grant employees a certain amount of unpaid leave for childcare and school functions. However, a number of these states require the employee to use PTO for such purpose. Assuming state/local law does mandate specific policies, employers must implement a policy that can be uniformly enforced against all employees. While many employers want to make the occasional exception, especially for “good” employees, doing so can raise issues when the same exception is not provided to another employee (e.g., potential discrimination claim). Some policies that employers may implement to address leave taken in excess of PTO include:
Limiting unpaid leave to a certain amount (e.g., 5 days) and subject to prior approval of the employer. Any unpaid leave above this amount will be subject to disciplinary action, up to and including termination.
Implementing a tiered disciplinary system which is clearly articulated to employees. For example, an employee may receive a warning for the first unpaid absence; may be officially “written up” (i.e., note in personnel file) or placed on probation for the second unpaid absence; and may be suspended or terminated for three or more unpaid absences.
Implementing a discretionary bonus system where the amount of bonus paid to an employee at the end of the employment year is dependent upon specific factors, including unapproved or excess absences.
Employers have a lot to think about when implementing a PTO policy. As a takeaway, it is critical that: (1) the employer check state and local law; (2) the policy be in writing and communicated to employees; and (3) the policy be uniformly enforced against all employees. Otherwise, employers have significant discretion in determining how they wish to address PTO in their practice.