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Creating a PTO Policy

Wednesday, 28 September 2016

by Staff, Spaulding Law

Traditionally, companies have allowed their employees to take time off under two different policies, sick days and vacation. The rules and compensation often vary under each policy. However, we are currently seeing a shift toward paid time off “PTO” policies which combine all time off into one policy where sick days and vacation days are treated the same. This allows an employee to have more control over their time. It can also be easier on the company because they have less to track administratively and it reduces the incentive for an employee to claim illness to maximize their use of the policy.

Companies need to carefully consider what type of PTO policy they want to offer and the rules that govern it. Some things that should be considered are how much time an employee earns and at what intervals, whether or not there are any caps to the number of hours available at any given time, and requirements for paying out unused time. A large number of hours being taken all together or paying out a large number of accumulated hours can put a strain on a company and makes PTO a liability. Below are some ideas that could be used for a combined PTO policy that could help you manage this liability:

• Limited Accumulation: Accumulated PTO can create a serious liability for a company. You may want to consider a policy that allows the employee to only accumulate a percentage of their PTO at one time. If the employee has accumulated that percentage without taking time off, they will not continue to earn PTO hours again until they have taken time off.

• Limited Carryover: This policy states that an employee must use their allocated PTO by a specified time of the year (beginning of the year or anniversary of start date). At the start of a new year, the employee may carry over a specified number of hours. Any PTO hours in excess of the specified number are lost.

• No Carryover: This is a “use it or lose it” approach. An employee has the opportunity to use the allocated number of PTO hours granted within a year (calendar or anniversary of start date). At the start of a new year, the number of PTO hours earned goes back to zero and any excess hours that have not been used are lost.

Being aware of the state laws regarding PTO is critical. The laws on how you approach PTO are different in every state. In Utah, for example, a company is not required to provide PTO. However, if it is in the employment agreement or statement of compensation, the employee may have a claim to enforce that policy. You should contact an employment law expert familiar with your state’s laws to make sure any policy you create is enforceable and will have the desired results.

This information is made available by Spaulding Law for educational purposes only and not to provide legal advice. By using this website, you understand that there is no attorney-client relationship between you and Spaulding Law, unless you have entered into a separate representation agreement. This information should not be used as a substitute for competent legal advice from a licensed professional attorney.

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