- A paid time-off policy is a combination of days off that an employee can take while still getting paid.
- Each state has its own restrictions and requirements for PTO policies.
- A PTO policy should include paid and unpaid leave options, accrual and rollover details, PTO request procedures, and consequences for violation.
- This article is for business owners and HR managers who want to create a legally compliant PTO policy.
Do you have an employee who is constantly calling out "sick" or taking excessive amounts of time off? While many employee absences are legitimate, recurring unscheduled absenteeism can really disrupt a business – especially if the employee is taking paid time off.
Your first instinct might be to discipline the employee, accuse them of taking advantage of the company, or even threaten to fire them. But if their reason for missing work qualifies as a legally protected absence, you could land yourself in hot water.
Tricia Meyer, founder and managing attorney at Meyer Law, noted that it's important for employers to understand federal or state laws regarding employee leave so they aren't creating illegal policies or making unfair demands of their workers. Learn the ins and outs of creating a smart time-off policy and handling employee absences.
What is PTO?
Paid time off, otherwise referred to as PTO, is exactly what it sounds like: It is an employee benefit in which the employer pays the employee for an allotted number of days off of work each year. Employers can choose among a variety of different paid time-off options like federal holidays, floating holidays, vacation days, sick leave, parental leave, bereavement leave, jury duty, and military leave. Employers also determine PTO policy guidelines, like who is eligible, how many days are available each year (set or unlimited), and how PTO accrues. The best PTO policy for your business will depend on your organizational and team needs.
Difference between sick leave and PTO
It is worth noting that sick leave and PTO policies can slightly differ. Paid sick leave is a specific amount of time off that can be used for injury, illness, or related reasons, whereas a paid time off policy is an all-encompassing time off bundle that can include paid sick leave.
Key takeaway: PTO is an employee benefit in which the employee is paid for days they are not at work.
Editor's note: Looking for information on time and attendance systems? Use the questionnaire below, and our vendor partners will contact you to provide you with the information you need:
What to include in your policy
Whether you're writing your first time-off policy or updating your existing one, our sources recommended including a few key things.
- Employee work hours: Define the expected business hours and number of hours worked per week, as well as a clock-in/out procedure to make sure employees are meeting those requirements.
- Paid and unpaid leave options: Aside from regular paid time off (including sick days, personal days, and vacation days), list out paid (or unpaid) holidays, leave periods (e.g., bereavement or jury duty), and federally protected absences like the Family and Medical Leave Act (FMLA) and disability leave. If your company has an unlimited PTO policy, explain what that means and how it should be used. "Write a clear description of what paid and unpaid leave is available for employees, including when and how they qualify for leave and how much leave they accrue each week, pay period, month, or year," Jaime Lizotte, HR and tax compliance solutions manager at ComplyRight, told Business News Daily.
- PTO accrual and rollover policies: You need to determine employee eligibility for your PTO plan. Do all employees start each calendar year with a lump sum of paid days off, or does PTO accrual occur throughout the year? Additionally, do any of their unused paid days off roll over into the new year, or do you have a use-it-or-lose-it policy? Some states prohibit use-it-or-lose-it policies (e.g., California, Montana, Nebraska), so it is important to check your applicable state laws to see what policy options are available to you.
- Payment upon termination: There is no federal law that requires employers to pay an employee their accrued and unused vacation time if they are terminated; however, you may be subject to state PTO payout laws, depending on where your company is located.
- PTO request procedure: What is the procedure for calling in sick or notifying the company when an employee won't be in? Should someone be notified if an employee will be late? Are employees responsible for finding a replacement for unscheduled time off? "Be sure to explain the policy for requesting leave, including any deadlines for vacation requests and blackout periods," said Lizotte. Your policy should be shared among all employees, supervisors, and managers. Additionally, executives should be trained on how to apply it fairly.
- Consequences for violations: The last part of your policy should spell out the repercussions if an employee does not follow the policy. Include the details of your PTO policy and guidelines in your employee handbook. "Write down the steps that will be taken for various infractions, to protect your business from charges of favoritism or discrimination down the line," said Lizotte.
Key takeaway: Create a comprehensive PTO policy that includes employee expectations, paid and unpaid leave options, accrual and rollover details, payment upon termination policies, scheduling procedures and violation consequences.
Do employers have to offer paid time off?
There are currently no federal laws that require employers to offer paid time off, but that doesn't necessarily mean you're off the hook. Each state has its own PTO requirements that determine whether employers are obligated to have paid time off policies or not. This is why it is important to check with your state's specific guidelines before drafting your time off policy.
Keep in mind, even if it isn't legally required, it is usually a good idea to offer some type of PTO and paid leave policy. Offering your employees the flexibility to take much-needed days away from work can improve your overall workforce. For example, offering vacation pay can help you attract and retain top talent, and offering sick leave can help you keep a healthy workplace.
Key takeaway: Although the federal government doesn't require employees to offer PTO, some states have their own requirements.
Staying legally compliant
As an employer, you have a legal obligation to treat employees fairly when it comes to your leave policies. Research federal laws like:
- The FMLA
- The Americans with Disabilities Act (ADA)
- The Uniformed Services Employment and Reemployment Rights Act (USERRA)
- Title VII of the Civil Rights Act of 1964 (Title VII)
Additionally, familiarize yourself with your state's workers' compensation laws.
"You must make sure that you are not reprimanding or even denying the absence of an employee for any protected reason," said Lizotte. "Also, make sure that you are treating each employee the same so that you do not end up with a discrimination or wrongful termination claim."
It is always best to have an experienced attorney review your policies to make sure there's no problematic language or rules.
"Employers should consult with professionals to ensure that they are complying with various federal and state laws with respect to their policy and implementing best practices," said Meyer. "An employer's policy should be clearly written and sent to all employees for their review/acknowledgment."
Key takeaway: Check federal and state laws and consult with a legal professional to create a compliant PTO policy.
Tracking and handling employee absences
Employee absences are more than just a compliance issue, and how you handle them affects company costs, profitability, culture, employee morale, and more, said Raj Narayanaswamy, co-founder and co-CEO of Replicon.
"The way you choose to comply with these absence requirements can have a far-reaching impact on more than just your legal department, so take the time to fully understand how time is being deployed in your company," he said.
Lizotte noted that employers can easily track employees' absences by either creating a process in their company in which they document absences regularly, such as with paper, or finding an electronic solution that allows them to easily enter employee absences as they occur.
"If the employer intends on scaling the company, I'd recommend using a third-party software product to track, as it is typically less administratively burdensome compared to tracking in a spreadsheet, is less likely to contain errors, and allows the employer to ensure compliance with state and federal laws more easily," Meyer said.
Before you approach an employee about chronic absenteeism, it's wise to conduct an internal audit to uncover the root of the issue, said Lizotte. Is your employee choosing to call out of work because they're feeling stressed and pressured and need some time to decompress? Are they calling out because of a family situation (e.g., caring for children or aging parents)? Because of health-related behaviors of their own?
Next, Lizotte said to look at your company's attitude toward unscheduled absenteeism. Do you tolerate it because everyone needs time off now and then? Do you feel it's abused because you don't know how to manage it differently? Or is it frowned upon, and the employees know it, but it still happens?
"By conducting this audit and answering these questions, you will be able to identify … [and] understand any absentee issues your company may have, and [then] implement a plan," said Lizotte.
Before taking any disciplinary action against an employee, we advise consulting an HR professional and/or an attorney to make sure you're staying legally compliant.
Key takeaway: Use time and attendance software to track employee time off. If an employee is taking excessive time off, conduct an audit before approaching the employee.
Additional reporting by Sammi Caramela and Skye Schooley. Some source interviews were conducted for a previous version of this article.