Employment & Labor Insider

Paid Time Off can be a fantastic tool for employee retention and recruitment. However, PTO policies can be a challenge. Before you get swept away, here are three key considerations for drafting robust employee PTO policies.

No. 1: Know your state laws. Staying current with state PTO requirements and payout laws is crucial, especially for businesses that operate in multiple states. No federal law mandates PTO or its payout. Meanwhile, trying to comply with different state requirements can feel like swimming against the tide. Some states, like Illinois, Maine, and Nevada, require certain employers to offer some form of PTO. More than a dozen states mandate that employers pay out accrued, unused PTO when an employee leaves the company. In some states, including California, Colorado, Montana, and Nebraska, it’s illegal to prohibit employees from rolling over or cashing out PTO after a certain date (these are also known as “use-it-or-lose-it” policies). Meanwhile, other states allow employers to hold onto accrued, unused PTO when an employee leaves, but only if the employee has received prior written notice of the employer’s policy.

Crafting a policy that complies with every applicable state law can be daunting, so employers should have their PTO policies drafted with the help of, or reviewed by, employment law counsel.

No. 2: Ensure your policy is thorough. PTO policies should be comprehensive and detailed to help prevent conflicts, complaints, and other unexpected problems. A PTO policy should address several key questions, including the following:

• Are part-time workers eligible for PTO?
• How is PTO accrued?
• Can employees roll time over from year to year? How much?
• Is all, or a portion of, unused time paid out upon termination? How much?
• Are there limitations on PTO payouts at termination? What are they?

In addition to complying with state laws, employers must also follow through with any commitments outlined in their employee handbooks, employment contracts, or other employment agreements, even if those commitments exceed state law requirements. Moreover, changes to existing PTO policies should be made carefully, keeping in mind that nearly all states prohibit reductions in PTO that the employee has already earned, or “accrued.” In other words, a PTO policy change that would result in a reduction in PTO benefits can be made only on a going-forward basis in most jurisdictions.

No. 3: Document and communicate. Employees need to know how their PTO works to plan their time off effectively. Communicating your PTO plan is almost as important as the content of the plan itself. Ensure that your PTO benefits are documented and easily accessible via the employee handbook or company intranet. This transparency helps to create a positive workplace culture and prevents misunderstandings.

Just like a well-planned vacation, a clear and compliant PTO policy ensures that employees can enjoy their time off and return to work refreshed, while employers reap the benefits of a more productive and satisfied workforce. So plan your PTO policy carefully and enjoy these breezy last days of summer!