When working with a new employer or negotiating with the current one, the employee must talk about the basics – the salary, working hours, and even PTO. There has been confusion surrounding employee PTO for quite some time.

Do companies have to pay out PTO?

What are the PTO payout laws by state, and what states require employers to pay unused vacation?

What happens to PTO when you quit the company?

Well, every state has a different PTO cash-out policy, and it leads to more confusion.

The following article will elaborate on the various aspects of PTO payout, vacation pay laws in different states and whether companies have to pay out PTO. 

What is Employee PTO?

PTO (paid time off) is an added advantage that lets employers give their employees paid holidays. One can consider it as a bank of work hours from which employees can draw out time. In some companies, PTO pay includes vacations and sick leave. But there are companies in which PTO pay doesn’t cover sick leaves. “Do companies have to pay out PTO?” is one question that has been debated over for years, and the answer is that some companies do, and some don’t. Companies have to keep in mind the PTO cash-out policies in their states for this. For the companies that allow it, there are various kinds of employee PTO that they can provide. 

Types of Employee PTO

There are quite a few types of employee PTO that a company can offer. Here are a few common ones:

Vacation Leave

It is when employees go on vacations, travel, meet friends and family, and get a break from work. The number of days the employee gets as leave varies, and there are rules relating to when and how the employee can use this leave. It is better to notify the employer before taking this leave. 

Sick Leave

Employee PTO also includes sick leave, in which the employers offer employees to take leaves when they are ill or injured. It reduces the chances of sickness going around a company and prevents employee burnout. 

Personal Time

Employees give employers time to attend to their personal work like doctor’s appointments, family functions, or any other leave that doesn’t fall under the above two. It again varies from company to company and can even be illegal in some countries. 

Bereavement Leave

Bereavement leave is the leave that employees get when a family member or close one passes away. They can use this time to attend funerals, services and also cope with the loss. Some companies give a different number of days for this, so being explicit about the time one needs when negotiating with the employer is essential. 

Paternal Leave

Parental leave can be unpaid in many states. Do companies have to pay out PTO? In this case, it is not determined. Even though many companies don’t allow this leave, many are slowly adopting this PTO pay. If there isn’t pay, then you can qualify for disability insurance. 

Employee PTO Family Leave

How should Employees Plan PTOs?

Track Projects 

It can be irritating if a co-worker takes time off at a pivotal time in a project. Obviously, not all time off can be planned. But companies should incentivize employees to plan time off well in advance when they can.

If the employee tracks their projects well, it becomes easier for them to plan their time-off when there will be no chaos in the team due to their absence. 

Coordinate Time Off

It can be a hassle if 2-3 key team members take time off in tandem. Employees should be able to check who all are planning to take leaves during the same time period. Managers should also have easy visibility of all planned leaves and who all are taking them.

Vacation tracking software like AttendanceBot integrates with all calendars and makes sure that employees and managers have complete visiblity on planned vacations.

Find a “Go-To” Person

Taking an unscudeled sick leave can often be detrimental to completion of projects. But if employees can designate a point of contact for any issues while they’re on leave, it can make the things much simpler. The co-worker should be able to respond to any queries in their absence and make sure the project isn’t derailed.

Looping in this person to your out of office email is a great way to ensure everyone knows whom to reach out to.

Keep Pending Tasks to a Minimum

It is always convenient if the employee doesn’t keep any meetings or crucial decisions pending. It allows other people to be sure about their responsibilities, and there isn’t a significant shift in duties in case time off is taken.

The Benefits and Drawbacks of Employee PTO

Benefits of Employee PTO

  • It reduces unscheduled absences, as with a PTO policy, employees have the option of planning their day-offs. This means that there are fewer chances of employees missing out on important deadlines. 
  • It gives the employees more autonomy because they are the ones who decide when they take leave. Which can help the employee manage time better and lead to improved work quality. 
  • It can reduce the employer’s workload because they don’t have to keep tracking the employer’s leaves, and they don’t have to worry about sudden absences. 
  • Paid time off for employees with tenure can be an effective way to reward employees who have been loyal to the company. 
  • Overworked employees often underperform. By having paid time off, employees are incentivized to not burn out and focus on things other than work.

Drawbacks of Employee PTO

  • A company must have a policy for people who use up their paid-time-off early on in the year. They might still need time off if something unforeseen comes up. These policies could be negative leave balances or unpaid leaves but they need to be mentioned to minimize confusion. 
  • Employees should remember that every state has a different PTO cash-out policy, and the contract one makes with their employer is also taken into consideration. Do companies have to pay out the PTO or not depends on both factors. 
  • For companies that are reticent about employees taking time off, a PTO policy may mean that more employees take time off. Of course, companies should recognize that overworked employees are ineffective so this shouldn’t be a drawback for most companies.
  • Employees may feel that taking time off reflects poorly on them and choose to not utilize their PTO. It makes sense for HR to track leave data to ensure that employees aren’t overworking themselves.
  • If an employee hasn’t used up all the paid days off, the company has to pay out the PTO at the time of resignation. It can increase costs at the time of the employee’s exit.
  • The maintenance of time off records can be costly.  

Do Companies Have to Pay Out PTO?

Companies have to pay out PTO if they promised to do so in employment contracts or operate in a state which mandates PTO payout.

Employees’ accrual and unused time off isn’t subject to federal law but over half of the 50 states have statutes that require companies to pay out unused PTO. State-wise laws can widely different, for example, Colorado allows companies to have a “use-it-or-lose-it” approach to paid time off as long as it is included in the employment contract.

If you’re unsure if you’re entitled to accrued PTO payout consider the following:

  • Check your employment contract and ensure it is mentioned in any future contracts
  • Look at the payout laws by state for the state your company operates in
  • If you are working remotely for a company in another state, look at payout laws for your state because your company need to comply with those too.

What States Require Employers to Pay for Unused Leaves?

More than half of the 50 states in the United States have some type of payout policy for unused PTO.

States That Don’t Mandate Unused Vacation Payout Unless Mentioned In the Employment Contract

Alaska, Arkansas, Connecticut, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Kansas, Kentucky, Maine, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, Wisconsin and Wyoming.

States That Mandate Vacation Payout

Arizona, California, Colorado, Illinois, Indiana, Iowa, Louisiana, Maryland, Massachusetts, Nebraska, North Dakota, Rhode Island, South Carolina and West Virginia.

There are some states that have not addressed vacation pay at all. The question then arises if companies have to pay out PTO in these states. In this case, the matter solely depends upon the employer’s policy or the employee’s contract. 

Paying Time Off during Resignation

How to Calculate PTO Payout?

Calculation of PTO payout depends upon the state laws and the contract an employee has with a company.

The employer has to make sure the number of hours the employee has accrued throughout their time with the company. If the company uses attendance tracking software like AttendanceBot for this, the employer has immediate access to this data. More traditional forms of tracking can make accrued leave payout a little more complex. 

The calculation can be dependant on the work hours as well. Many companies offer paid time off differently for salaried and hourly employees. In this case, the calculation will also differ. 

Some Common PTO Policies

Traditional PTO Policy

It is the most commonly used type of leave policy that has been around for the longest time. The policy allows employers to give their employees time off under specific categories like sick leaves, personal time-off, jury time, and vacation. Employers provide employees with a particular number of days under each category.

But, a lot of companies are moving away from this policy due to the complexity of tracking and rollover of leaves. It is also an outdated system because it restricts the employees to certain situations where they can take time off. 

Earned PTO

In this system, the employee gets PTO as days or hours at the end of a specified time. The PTO increases after a certain period. For example, an employee has a PTO of 12 days at a company. The employer gives them an accrued time of a few hours throughout the year. The extra PTO adds up at the end of the year, and the employee earns more leaves. Do companies have to pay out PTO in this case? If an employee has a definite contract with the employer, they will get paid for the accrued time too. 

Banked PTO 

Similar to the traditional PTO pay policy, PTO banks or allotment PTO policy allows the employees a specific amount of days as PTO. But the difference between the two is that PTO Banks allot a particular number of days as PTO. The employee can use these days as and when required. Some companies allow employees to carry time over to the next working year if they haven’t used their allotted time. 

Unlimited Employee PTO

The unlimited PTO policy is relatively new but has gained attention from startups and companies that do not have an adequate HR infrastructure. The unlimited PTO policy allows employees to take leaves as and when required. There is no set number of days and no fear of running out of paid time off. Do companies have to pay out PTO or don’t they? It doesn’t matter in this case because the company doesn’t lose any money when the employee resigns. But under this policy, employees often take less time off because they aren’t sure what the ideal vacation days look like. 

Leave policies can be complex but they are one of the fringe benefits that employees actively look for. All types of leaves have a legal aspect to them that should be looked at through the federal and state law levels. Factors like accrued PTO payout, location of employees and competitor policies can play a huge role in the choice of leave policies.

In the post-pandemic world, it has become important to offer at least some paid time off to all employees. How has your PTO policy evolved? Reach out to us at @HarmonizeHQ and let’s discuss.

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