Paid Time Off Employer FAQs: What to Know About PTO Policies

A strong paid time off (PTO) policy helps retain current talent and attract prospective candidates. Not to mention that employers also provide employees PTO as a way to combat employee burnout, increase productivity, and boost morale. From what it is to how it works and other common FAQs, find out what you need to know about PTO.

Q: What is Paid Time Off (PTO)?

A: Paid time off, or PTO, is time that employees can take off of work while still getting paid regular wages.

This does not include times in which an employee works remotely or telecommuters. Often, PTO policies combine vacation, sick, and personal days.

Companies structure their policies in different ways depending on the company’s size and industry—for example, sometimes vacation, sick, and personal hours are separated into different buckets, and other times they’re all pooled together. It’s also common for PTO policies to include time off for national holidays, floating holidays, paid family leave, and paid sick leave.

Q: Are Employers Required by Law to Offer PTO to Employees?

A: Generally, no.

For most companies, there are no federally mandated PTO laws. However, there are exceptions. For government contract work and federally supported contract work that falls under the McNamara O'Hara Service Contract Act (SCA) or Davis-Bacon and Related Acts (DBRA), it may be mandatory to offer paid time off.

Each of these acts uses the prevailing local standard for fringe benefits to determine if PTO needs to be offered. So, if the prevailing local standard is to offer PTO, then PTO must be offered.

If an employer offers paid leave, it is important to note that it must be done in accordance with the standards of the Equal Employment Opportunity Commission (EEOC). This means that an organization’s PTO policy must not discriminate on the basis of race, color, religion, sex (including gender identity, sexual orientation, and pregnancy), national origin, age (40 or older), disability, or genetic information. 

Employers, however, can segment PTO policies based on tenure, location, time commitment (i.e. part-time vs. full-time), and other factors.

Q: Can an Employer Deny PTO Requests?

A: Yes, employers can deny PTO requests for vacation time and personal time, though there may be some limitations to other time-off requests.

For example, if an employee requests time off that’s protected by the Family and Medical Leave Act (FMLA) or another labor law, they must grant the time off. With this said, the FMLA only requires unpaid leave. 

Q: Does an Employer Have the Right to Ask Why an Employee Wants Time Off?

A: Yes, however, the employee is under no obligation to provide a reason.

Employers should also be careful about the nature of the inquiry. For example, a line of questioning could infringe on an employee’s rights if it compels someone to reveal information protected by the Americans with Disabilities Act (ADA).

Q: Can an Employer Require Employees to Use Their PTO?

A: Yes, in general.

According to SHRM, employers can require employees to use PTO. This approach is most commonly taken by organizations that operate under busy seasonal periods. 

Q: Can Employees Use PTO During Their Two-Weeks Notice?

A: Yes.

With this in mind, employers do not have to grant time off unless it falls under the protections laid out in the FMLA and other labor laws.

Q: How is PTO Earned?

A: In most organizations, PTO is earned in one of three different ways:

1. Accrual: PTO accrues over time, typically on a monthly or quarterly basis. 
2. Lump Sum: A specific, predetermined amount of PTO is allotted to employees on a particular date (typically the beginning of the year or the anniversary of the employee’s start date).
3. Unlimited: Employees can use as much time off as they want and need, within reason. Some organizations permit the use of unlimited PTO immediately while others may implement a waiting period for new employees (i.e. three months after their start date).

Q: What State Laws Apply to Employer PTO Requirements?

A: Some states may have PTO laws that apply to companies within that state’s borders.

A few examples include:

1. Required PTO Payout: These laws make it mandatory to pay employees for accrued PTO days that have not been used. This means that employees who haven’t used their accumulated PTO can request compensation for PTO days that have not been taken.
2. PTO Payout Rate: These laws decide what pay rate should be used to calculate the total payout an employer is responsible for paying an employee. For instance, some states require employers to calculate payout based on the employee’s pay rate at the time of termination.
3. Paid Sick Leave: In a few states—including Arizona, California, and Massachusetts—employers are required to offer paid sick leave to qualifying employees. While all of these jurisdictions require some form of paid sick leave, sick laws may vary based on factors such as employee type, eligible employees, and rate of paid sick day accrual. Check if your city, county, and/or state requires paid sick leave. Be sure to look at your state, city, and county’s websites for specifications.
4. Paid Family Leave: Paid family leave is paid leave for employees needing to take care of family members for medical purposes, including for the birth or adoption of a child. Like paid sick leave laws, these laws can also vary depending on the jurisdiction. Variations may include employee type, employer size, employer classification (private, public, governmental), medical assistance type, and leave care recipient(s). Check to see if paid family leave applies to you.

Q: What Happens if an Employer Isn't Compliant with State PTO Laws?

A: The employer will be held to the legal standards of that state.

These may vary. For example, if an employer commits to PTO payout in an employment contract but fails to pay out PTO upon termination, applicable contract law standards would be used to evaluate the case.

With this in mind, there is no risk of a lawsuit unless the employer previously promised to offer PTO or if the employer terminates a remote employee who resides in a state that regulates time off payouts. If an employer chooses to offer PTO to employees, that employer simply needs to understand and comply with payout regulations in its state.

Q: Are Employers Required by Law to Pay Out PTO When an Employee Departs the Company?

A: Unless otherwise stipulated in an employment contract, no—at least at the federal level.

However, there are state laws that establish PTO payout requirements. In other words, employers are only required to pay out PTO if they promised to do so in an employment contract or operated in a state that regulated PTO payout.

Check to see if your state regulates PTO payout.

When evaluating PTO payout laws in your state, consider the following questions:

1. How much unused PTO do I have to pay out? Your state may require full payout, no payout, or partial payout of unused PTO upon termination. 
2. If I have remote employees working in a different state than my company headquarters, which state’s PTO payout laws apply? An employer is only responsible for paying out PTO if the terminated employee resides in a state that requires it. For example, consider an employer living and working from home in California and employed by a company headquartered in Tennessee. California requires employers to pay out unused PTO; Tennessee does not. Because the employee resides in California, California law would apply and the employer would be responsible for paying out PTO to the remote employee.
3. What pay rate do I use when calculating PTO payout? Some states require employers to pay out PTO at the employee’s rate of pay upon termination. Others allow employers to pay out PTO at the rate of pay at the time the PTO was accrued. Why does the pay rate matter? An employee may earn more money at the time of termination than they had at the time they accrued the PTO, which can affect the amount an employee is owed.

Q: Are Employers Required to Permit PTO Carryover for Employees?

A: Not federally.

Since most employers are not required to offer PTO at all, they are also not required to let accrued or leftover PTO roll over into the next year. 

However, state laws that regulate PTO carryovers may apply to certain organizations. HR should check with the organization’s state Department of Labor for more information.

Q: Can Employers Enforce PTO Blackout Dates?

A: Yes.

Vacation blackouts are specific dates when employees cannot schedule time off due to an expected increase in volume or special events such as product releases or the holidays. PTO blackout periods are common in industries with seasonal businesses such as retail and customer experience.

As has been covered, for most situations, no federal laws exist that require employers to offer paid time off. However, some states may have PTO laws of their own that apply to companies within that state’s borders.

Since paid time off is offered optionally and at employers’ discretion, employers have the ability to block off periods of time when no PTO requests will be approved as long as the policy does not conflict with any state or local laws or union employee contracts.

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