There’s no federal or state law that says an employer must offer employees paid vacations or paid time off (PTO). This is set by company policy and should be written and communicated with employees. Even though there is no law requiring vacation or sick time, employers are compelled to offer such programs since most employees have an expectation of time off. Many people, especially Gen X and Gen Y, would not apply for a job where these policies are not established.
Therefore, let’s look at two models.
Model 1: The traditional program is to have separate vacation and sick policies. Under this model, employees request vacation time out of their vacation “bucket” which for illustrative purposes is five (5) days. If the employee is sick, then they draw out of their “sick-time” bucket which, in this example, is three (3) days. This gives the employee eight (8) total days available per year for respective purposes. By company policy, vacation time can rollover to the next year; however, courts view vacation time as a “vested” benefit and must be paid if not used. Sick time on the other hand does not have to be paid under this model nor rollover. This is important when an employee leaves employment; the vacation balance should be paid within accrual and rollover policies as a vested benefit which courts have upheld (nationwide) regardless of any “use-it-or-lose-it” policies. Vacation, therefore, should never be considered a non-compensatory benefit.
Model 2: PTO programs are becoming very popular since they just have one bucket of time for both vacation and sick time (note, there are also personal days, bereavement, etc., which I am not using in this example). In my example, under a PTO program the days available in Model 1 above, would be simplified into eight (8) days for any purpose. Once those days are used, employees have no further paid leave. This all seems like an easier way to handle things; however, state laws specifically have not been altered in any substantive way to delineate between types of leave within a PTO program and therefore, are generally treating the entire PTO balance as a vested benefit. What this means is that instead of being required to pay for the five (5) days of vacation in Model 1, under this model an employer would be required to pay the full eight (days) of PTO. Consequently, as companies are becoming acutely aware of these differences (see Target vs. California which cost $10 million to settle), many are opting to return to the traditional model until states can alter their laws.
Regardless of which model you utilize, having clearly defined policies is key. We have written both programs for many clients dependant primarily on which state they are operating in. Florida and Texas, for instance are very “employer” friendly with PTO, while California is very “employee” friendly. Be sure to ask about your state before you try and write your own policy.
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