Paid Time Off Policy Considerations

Written by: Michele O'Donnell, M.S. Human Resources Management

 
With the summer months knocking on the door, many employers are inundated with time off requests. After all, school is out and summer seems to be the most popular time for vacations.  Many times, employers become frustrated juggling time off requests - in addition to absences due to illness and/or leaves of absence - while ensuring the business operates smoothly. This frustration causes many employers to review their paid time off policies at this time of year. There are a number of considerations to keep in mind when developing paid time off policies.

Currently there is no federal or state law requiring private employers to provide paid time off (in any form) to employees. However, San Francisco has passed legislation requiring mandatory sick leave and is currently the only city to do so. Several states and Congress are considering similar measures. Experts expect a mandatory sick leave bill to be a proposed again in Congress and for it to have greater support than in past years. (Finerty, Daniel "Heads up on the Healthy Families Act", December 2009.) 

The most common types of paid time off are holiday, vacation, sick and PTO (a single bank of time that encompasses all types of paid time off a company offers). As always, it is imperative for an employer to know all federal, state, and local requirements that may exist in regards to employment. As stated above, there is federal requirement for private employers to offer paid time off, and at present time there are no state requirements to do so (however, there may be local requirements in your area).

Although a state may not require an employer to provide paid time off, it may very well have rules in place if an employer chooses to provide this benefit to employees. California considers vacation time to be a vested benefit and requires that all accrued and unused vacation be paid out to an employee at separation. This could be quite expensive if a California employer allows 3 weeks of paid vacation per year and an employee does not use any vacation time during their 5 year employment. At the time of separation, the employer would have to pay out 15 weeks of vacation. Many states leave the issue of payment at termination up to the employers’ policy; please note, if the policy does not address the issue, the employer may be required to pay out any accrued and unused vacation time.

It is important to note that it is imperative for employers to know how their state will treat a PTO bank in these circumstances. California will view all time in a PTO bank as vacation time, and the rule mentioned previously will apply. Illinois and Colorado will allow employers to designate the percentage of time that is vacation time in the PTO bank and only pay the accrued and unused portion based on that percentage. The percentage used must be used consistently by the employer.

There are ways that employers can limit their financial liability when it comes to vacation/PTO banks and payout at termination. Employers can institute an eligibility period; for example, employees cannot accrue until the successful completion of their introductory period. Employers can also establish a cap on accruals which will allow employees to accrue up to that cap, and once they have reached that cap, no further accrual can happen until a sufficient amount of time has been used to allow for additional accrual.
As with vacation and PTO time, currently there are virtually no requirements to provide paid sick time to employees, with the exception of the city of San Francisco. Again, as with vacation and PTO time, your state or city may have requirements for employers if they choose to offer paid sick time.

For Example: California requires employers that provide paid sick time allow employees to use up to 50% of their available annual sick leave to attend to an ill family member. A family member includes child, parent, spouse, domestic partner or child of a domestic partner.  The definitions of “child” and “parent” include adopted, foster, step and biological relationships, as well as legal guardians and wards. The criterion for domestic partnership is defined in Family Code Section 297(b).

In addition to knowing and complying with the legal requirements surrounding paid time off, employers must also consider the impact of paid time off on operations and draft policies that do not hinder the smooth operation of the business. Employers should consider how many employees may be off at the same time, the manner in which an employee requests time off, how multiple requests for the same period of time will be handled, and who is authorized to approve paid time off. 

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