PTO – What are your employer obligations?

Many employers establish paid time off (PTO) policies as an added perk to make their companies more attractive to prospective employees. PTO plans and policies can come in many forms, with some organizations even offering ‘unlimited’ and ‘no-questions-asked’ paid time off. Others may opt for more traditional annual banks or monthly accruals of PTO, in many cases by tiers based on seniority with the company.

For most employers, the offering of PTO is not federally mandated, though some exceptions apply to government and federal contract work that falls under the McNamara O’Hara Service Contract Act (SCA) or the Davis-Bacon and Related Acts (DBRA).

State Mandated Paid Time Off

Individual states may have some rules and requirements for employers regarding PTO. These state- and locality-specific rules cover may include:

Required payout and pay rate used for PTO payouts – Certain states or localities might require employers to pay out accrued and unused PTO balances to their employees, and laws may dictate the rate of pay at which the hours should be paid out.

Paid sick leave – While some employers may opt for blanket PTO policies, others may choose to separate vacation time and sick time, with different policies for each type of plan. In some states, paid sick leave is required by law, with varying rules on how employee eligibility is determined.

Paid family leave – Similar to paid sick leave, individual states may have specific regulations that require employers to provide paid leave for employees taking care of family members. These rules and requirements can vary by state and can depend on employer size, employee type, and the relationship between the employee and care recipient.

Some states have also issued temporary emergency sick leave rules in response to the COVID-19 pandemic as a measure to provide additional benefits to certain workers impacted by the coronavirus.

Do You Need To Update Your PTO Policy?

With this in mind, it may be time to reassess and/or redesign your organization’s PTO policies, especially if your business operates in a state that requires separate sick leave policies. Keep in mind, the area of PTO can be very confusing and laws are ever-changing, so seeking expert guidance on plan design may be helpful, particularly when it comes to mandated sick and family leave policies. A well-designed PTO policy can help boost productivity and morale by allowing employees to earn and take advantage of their well-deserved time off while still receiving pay. And, as we all know – happy employees are good business.


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