Is a Combined or Separate Approach Better for PTO?

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Deciding whether to have a Paid Time Off (“PTO”) policy versus a separate paid sick time and vacation policy is a business decision. There is no one-size-fits-all approach, and our clients take varied approaches to the same. Both approaches, as outlined below, have pros and cons.

THE BASICS ON PAID SICK LEAVE, VACATION TIME, AND PTO

SICK LEAVE

California employers must provide Paid Sick Leave to their employees. Paid Sick Leave may be used for specific reasons specified by law. Under California law, employees are entitled to a minimum of 24 hours (or 3 days) of paid sick time per leave (note: local city or county regulations may specify more time). Paid Sick Leave is not required to be paid to employees on termination of employment.

VACATION TIME

There is no requirement that employers provide paid vacation time. That said, if an employer provides vacation time, it is considered wages and accrues on a day-by-day basis as labor is performed. Unlike paid sick time, unused vacation time must be paid out at termination at the employee’s final rate of pay.

SINGLE/COMBINED PAID TIME OFF “PTO” POLICY

What is a PTO policy? In short, it’s a benefits policy that allows employees to use time off for sickness or vacation without specifying the reason for the employee’s absence. A PTO policy rolls paid sick leave and paid vacation time into one policy, but does not keep track of the reasons why an employee takes time off. A PTO policy will satisfy California’s paid sick leave laws if it is at least as generous as that required by California and/or local city or county law.

PROS & CONS OF A SINGLE/COMBINED PTO POLICY

BENEFITS DISADVANTAGES
  • Provides employees more flexibility – they can use PTO for vacation, illness, or other personal reasons at their discretion.
  • It can ease the administrative burden of tracking if employees are using or submitting time-off requests for appropriate reasons.
  • Managers are not put in the position of having to police their employees’ use of their paid time off.
  • PTO is generally considered earned wages, and unused portions must be paid out upon an employee’s termination or resignation.
  • When sick and vacation time are bundled together, research suggests that employees are less likely to take time off when they are sick because employees do not want to consume their paid time off for an illness. When administering discipline to employees with attendance issues, there is a chance that an employee could claim that they are being disciplined for reasons that are protected by California’s Paid Sick Leave law as an employer does not have insight on the reasons for the employee’s absence.

PROS & CONS OF A SEPARATE VACATION AND SICK LEAVE POLICY

BENEFITS DISADVANTAGES
  • Separation between sick leave and vacation leave will encourage employees to use sick leave when they are sick.
  • Upon an employee’s departure, an employer will need only to pay out an employee’s unused vacation time (unused sick time need not be paid).
  • Separate sick and vacation policies allow employers to meet the minimum requirements for sick time, while using vacation time to reward certain employees based on tenure or classification.
  • Both the employer and employees will need to track/police an employee’s use of sick or vacation time to ensure that the proper time bank (sick or vacation) is being deducted. Administrative and record-keeping burdens potentially increase.
  • Employees frequently ask if they can use their sick time for vacation or vacation time for sick time when they have exhausted the other leave bank. A single PTO system will obviate these concerns.
  • Arguably, separate sick and vacation policies are less competitive to attract talent, who seek combined PTO policies for flexibility.

No approach is unqualifiedly better than the other. However, from a strictly legal perspective, a separate policy removes some element of risk. But with either approach, it is important that managers in the organization set the pace and expectations for taking time off and model appropriate time off work behavior for employees. If you want to have a single policy, it is important to have a culture that promotes time off for physical and mental health.

If you have any further questions, or require our assistance in implementing a PTO policy, please contact us at info@mnklawyers.com.

This material is provided for informational purposes only. It is not intended to constitute legal advice, nor does it create a client-lawyer relationship between MNK Law and any recipient. Recipients should consult with counsel before taking any actions based on the information contained within this material.

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