Is Your PTO Policy a Disaster Waiting to Happen?
Over the past few years many companies have gone from having separate sick and vacation policies to having just one, consolidated paid time off (PTO) program. While the flexibility of these programs can be attractive to employees and companies alike, there are also some serious consequences that can arise from a poorly planned PTO program. If you haven’t recently reviewed the potential legal impact of your current PTO system, here are a few topics to consider.
PTO enforcement varies dramatically by state
Like much of employment law, the state your employees operate in may have a significant impact on your PTO policy. Certain states (like Texas and Florida) tend to favor employers while other states (like California and Illinois) lean towards employee centric rulings. Just because your employees have signed a document indicating they are aware of how your PTO policy works, doesn’t mean the state will consider your policy enforceable. If you haven’t already done so, it is wise to spend some time analyzing PTO program trends in your state(s) of practice and researching how the state has handled any litigation or complaints.
PTO “rollover” and termination payouts are tricky business
Many companies use statements in their PTO policy that indicate PTO days are a “use or lose” commodity and that some or all of the days are lost if not used within the year of their accrual. Recently, several courts (in multiple states) have ruled those accrued days were actually “vested compensation” and companies were required to pay out employees for those days. In fact, the Nebraska Supreme Court recently ruled that employers must pay out for unused PTO even if the employees’ compensation plan clearly states that it is a “use or lose” benefit. It’s important to look into your local and state employment laws to determine if your PTO program is enforceable as written.
PTO “buybacks” are legal, but complex
Some companies, rather than allowing PTO to expire, offer PTO buybacks that assign a value to unused PTO time and pay the employee out at that rate. While these programs are completely legal, remember that FLSA also counts these payments towards “total compensation” when figuring overtime payouts. So, a “buyback” can significantly increase your overtime costs if not carefully timed. Make sure you have considered how buying back PTO may impact any overtime payments to your staff. If possible, time these “buyouts” to coordinate with pay periods with no overtime.
The above issues are just a few of the possible ways your PTO program could be setting you up for trouble. Since employee litigation isn’t becoming any less common, as time passes it makes sense to review your policy if you think it may be less than bulletproof. Most companies switched to comprehensive PTO policies as a means of saving expenses. To ensure your program makes sense, it is important to confirm the short term savings aren’t outweighed by the long term issues.
