Switching to a Paid Time Off Program

Paid Time Off (PTO) programs combine vacation, sick and personal leave and may be a good option for you and your employees. However, there are several things you should consider before switching to a PTO program.

One problem with combining vacation and sick leave and calling it PTO is that employees must be paid for accrued, unused vacation upon termination, whereas there is no requirement to pay for accrued, unused sick leave. When vacation and sick leave are combined, however, employees must be paid for all accrued, unused PTO. Consequently, employers will end up paying for more accrued days upon employee terminations.

Additionally, it is acceptable to require employees to use sick leave in the year in which it is earned. It is not acceptable, however, to require employees to use vacation in the year in which it is earned. If you combine sick leave and vacation into PTO, you cannot require that the PTO be used in the year in which it is earned. (No "use it or lose it" policies are allowed.) Employers can, however, set a reasonable cap of at least 1.75 times the annual accrual amount on the amount of vacation or PTO time accrued, where no additional time accrues until the account balance drops below the cap. Another option is to cash out unused vacation or PTO time at the end of the year or at another appropriate period of time.

Another complication in switching to a PTO program is that California law requires employers to allow employees to use half of their annual accrual of sick leave for time off due to the illness of a family member or domestic partner. Further, employers may not take disciplinary or adverse action against employees who take time off for this purpose. If sick leave and vacation are combined into PTO, this rule would applied to all accrued PTO time.

In short, if you combine sick leave and vacation into PTO, all laws which are favorable to employees related to sick leave or vacation must be applied to the PTO. For employees, therefore, it is the best of both worlds.

If you decide to change to a PTO program, the transition should include all accrued vacation for each employee. Accrued sick leave does not need to be transferred because it is not viewed as wages earned.

Temporary Shutdowns and Partial Day Deductions: A New Labor Commission Opinion

If your business has a temporary shutdown of a full work week, such as during the Christmas holidays, you may require exempt workers to use up their accrued vacation and PTO. Under the original opinion, you had to issue a policy informing employees of this requirement at least nine months before the scheduled closure. The new opinion requires only "reasonable notice," generally not less than one full fiscal quarter or 90 days, whichever is greater.

Under the original opinion, employers were not permitted to deduct from accrued vacation and PTO for partial day absences of exempt employees, but under the new opinion, such deductions are now permitted. This change brings California law in line with federal salary basis regulations.

ESKRIDGE LAW may be contacted by phone (310/303-3951), by fax (310/303-3952), or by e-mail (geskridge@eskridgelaw.net.) Please visit our website at www.eskridgelaw.net or www.employmentattorneys.net.

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