We review a lot of paid time off policies (those that combine sick leave and vacation into PTO, and those that separate out vacation and sick leave policies), and for an apparently simple policy, there is a lot to consider! Below you will find a couple basic elements, along with some questions you may not have addressed.
1. How Do Employees Accrue Paid Time Off? Typically an employer will describe a maximum annual accrual and outline that the employee will either accrue a certain number of paid hours per pay period or per hour worked. If you use the latter method, and the employee takes vacation as you have encouraged her to do, she will never in fact earn the maximum vacation amount. This is not unlawful, but does it reflect your intention of providing that maximum accrual?
2. When Do New Employees Begin to Accrue Paid Time Off? When Are They Eligible to Take It? First, be sure your sick leave or paid time off policies take into account the new law, which mandates that sick leave begins to accrue on the first day of employment. Second, look at your accrual chart: have you told employees that they do not accrue vacation until after completion of 90 days, but nonetheless described their vacation entitlement in terms of a full year of benefits? The enforcing agencies will construe that the employee is, in fact, accruing during the first 90 days where your chart suggests that they earn 12 months' of vacation in a 9-month period.
3. How Do Exempt Employees Take Partial Day Absences? As a first thought, have you remembered to note that a full day absence for purposes of taking paid time off is eight hours? More important, have you thought about whether and how exempt employees may take partial days off? Remember, California and federal law allow you to require that an exempt employee use accrued paid time off for partial day absences. (Be very careful here: you may never deduct partial day absences from wages, but you may deduct them from paid time off). Have you made a decision on this? Be clear in your policy.
4. What About Full Day Absences by Exempt Employees? Remember, so long as your policy is express and clear, you are allowed to deduct an exempt employee's full day absences from wages if that employee absents himself for a full day and has exhausted accrued paid time off. However, if an exempt employee works any part of that day, then he has not absented himself, has he? You need to decide whether you want to require that employees who absent themselves for vacation, sick leave or PTO turn off their phones and computers. If you want them to remain connected from a beach in Aruba, expect to pay them for some or all of the days on which they work.
5. Have You Implemented a Cap on Accrual? You cannot have a "use it or lose it" policy in California by which employees lose earned vacation if they do not use it within the year. But you can, and should, create a cap on their accrual. This both encourages employees to take vacation each year and creates a cap on your vacation liability. The ideal cap is 1.5 times annual accrual.
6. How do Piece Rate and Commissioned Sales People Accrue Paid Time Off? If you want these employees to accrue paid time off, then you need to consider how they will be paid when they do take the time off.
7. What Happens in Your Company When a Non-Exempt Employee Has Exhausted Paid Time Off and Wants to Take a Day Off? Do you allow employees to take time off without pay once they have exhausted paid time off? This is not unlawful, but creates real risks for claims of inconsistent application of the policy. How can you counsel an employee for excessive absences if you regularly are allowing employees to take time off in excess of the paid time off caps? You can always be generous, and you must at the same time be mindful of the consequences.
8. What Happens to Paid Time Off During Leaves of Absence? Many companies have policies that state that paid time off is not accrued during medical, pregnancy or other leaves of absence. But do you apply that same policy to employees when they go on vacation? If not, there is an argument that you are treating, for example, disabled employees less generously than non-disabled employees who take time off. We recommend that you suspend the accrual of paid time off during any unpaid leaves of absence.
9. Remember One of Our Pet Peeves: Paid time off is a privilege, not a right. Except as limited by these new laws, employees still need to request and be granted permission to take time off. Abuse of attendance policies can and should be addressed, even if the employee has accrued paid time off on the books.