Compliance/Best Practices Employment Law Legal Topics

Give Paid Time Off or Sick and Vacation Leave?

Is it better for an employer to operate under a paid time off (PTO) policy or to have vacation and sick leave policies instead? A PTO policy is very appealing because it’s more straightforward and seems easier to administer, but there are downsides to taking that route.

As an alternative to having separate arrangements for vacation and sick leave, many employers instead provide paid time off that employees may use for both pre-planned absences such as vacations or personal days and unexpected absences such as illness or other emergencies. See, e.g., Govt C §§19858.3-19858.7 (annual leave program for state employees).

On the plus side, PTO provides employees flexibility and may make it easier for employers to manage employees’ use of paid time off by eliminating the need to verify the reason for absences (e.g., getting sick notes from doctors) or to determine whether an employee has the specific form of accrued time off available to use for the reasons that he or she wants to use it.

Going the PTO route also may mean that employers need not provide additional paid sick leave under the Healthy Workplaces, Healthy Families Act of 2014, as long as the PTO policy meets the following requirements (Lab C §246(e)):

  • Employees must earn at least the same amount of PTO as they would earn in paid sick leave under the Act; and
  • The policy must either:
    • Satisfy the accrual, carryover, and use requirements of the Act; or
    • Provide PTO to a class of employees hired before January 1, 2015, under a policy that used an accrual method different from providing 1 hour per 30 hours worked, provided that the accrual is on a regular basis so that an employee, including one hired after January 1, 2015, has no less than 1 day or 8 hours of accrued PTO within 3 months of employment, calendar year, or 12-month period, and the employee was eligible to earn at least 3 days or 24 hours of PTO within 9 months of employment.

But here’s a downside: PTO that an employee may use without condition is treated as vacation leave by the Labor Commissioner and is thus subject to the same restrictions on accrual, use, and payment that apply to “regular” vacation leave. DLSE Enforcement Manual §15.1.12 (“The DLSE has always opined that leave time which is provided without condition is presumed to be vacation no matter what name is given to the leave by the employer”). This means that PTO is vested when it accrues and any unused PTO has to be paid out at termination, just like vacation leave.

Whether any employer decides to go with a potentially easier PTO policy or prefers to offer separate vacation and sick leave policies will depend on how much flexibility they want to offer their employees in exchange for losing some control and potentially incurring higher payouts when an employee leaves.

To get a complete picture of all employee leave laws (including vacation, sick leave, holidays, and paid time off), check out CEB’s new book Employee Leave Laws: Compliance and Litigation, chap 3.

Other CEBblog™ posts you may find useful:

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18 replies on “Give Paid Time Off or Sick and Vacation Leave?”

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Dianna R. Madison

Attorney at Law

BRE #01347709 Broker

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The link to the article does not work,  Elizabeth Cohee Attorney At Law 4100 Redwood Road, Suite 373 Oakland, CA  94619 510.587.0747 telephone 510.580.9424 facsimile  From: CEBblog™ To: Sent: Tuesday, November 17, 2015 9:24 AM Subject: [New post] Give Paid Time Off or Sick and Vacation Leave? #yiv1556539169 a:hover {color:red;}#yiv1556539169 a {text-decoration:none;color:#0088cc;}#yiv1556539169 a.yiv1556539169primaryactionlink:link, #yiv1556539169 a.yiv1556539169primaryactionlink:visited {background-color:#2585B2;color:#fff;}#yiv1556539169 a.yiv1556539169primaryactionlink:hover, #yiv1556539169 a.yiv1556539169primaryactionlink:active {background-color:#11729E;color:#fff;}#yiv1556539169 | Julie Brook, Esq. posted: “Is it better for an employer to operate under a paid time off (PTO) policy or to have vacation and sick leave policies instead? A PTO policy is very appealing because it’s more straightforward and seems easier to administer, but there are downsides to tak” | |

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Three months into my old employer’s first PTO year, I had emergency surgery for my appendix. That year, I would have been better off (as an employee) with the old program of separate sick leave and vacation leave. In the years after that, when I was healthy, I was better off with the PTO. It was a large company, so I can see where the drawback to having to pay for accrued time upon termination could be a problem. I know that PTO hours “maxed out” at a certain level, which forced one employee — who had worked there for 20 years — to take every other Friday off to avoid missing out on accruing new hours.

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