Many employers choose to create a Paid Time Off Policy and it works well for them. However, to determine if it is a good fit for your company, let us explore the policy and pitfalls.
First off, PTO is a term that is generally used to define a policy that allows time off for any reason, including vacation and sick. It is a combined vacation and sick leave policy. At first glance this seems easy to set up and move forward. However, when combined, the policy must still respect all the nuisances of both sick and vacation rules. This is especially important when CA paid sick leave is taken into consideration.
Here is a quick breakdown:
Vacation
Vacation is a vested benefit which means it is a benefit that belongs to the employee, can’t be taken away, and must be paid out at termination. Vacation policies all a company to set waiting periods before accrual begins and when an employee may use it. The company can choose to offer a vacation policy or choose not to offer one at all. In addition, the employer can set the amount of vacation per year that the employee may earn and the accrual periods (weekly, biweekly, per hour).
Sick
Sick leave is an unvested benefit that can be subject to “use it or lose it” policies. California’s Labor Commissioner states a time-off benefit that is “contingent upon the happening of a specific event” is an unvested benefit and does not have to be paid out at termination. Sick leave is mandated by the State of California and all employees must have 5 days or 40 hours of sick leave available to use for specific circumstances due to illness or taking care of someone who is ill. The company does not have a choice to offer or not offer sick leave. A company cannot set waiting periods before accrual begins. Sick leave can be set up to accrue or as a lump sum, but it must be provided by the 90th day. In addition, when employees use their sick leave, they are protected from retaliation or any form of disciplinary action for exercising their use of sick leave.
PTO
What happens when Vacation and Sick combine into a Paid Time Off (PTO) policy? The two policies combine to include the best of both policies into one.
Following the vacation policy, the PTO becomes a vested benefit that now gets paid out at termination.
Following the vacation policy, it must be accrued as a vested benefit and no lump sum is allowed.
Following the sick leave, the time must begin accruing from the date of hire although you can still not allow the employee to use it during the first 90 days. But the employee can’t be made to wait longer than 90 days before they can use the earned time off.
Following the sick leave, the employee is protected from retaliation or any form of disciplinary action for using the PTO.
All employees are eligible, not just full-time.
Many companies decide to create a PTO policy but it should be decided only after much consideration. Infinium can help you determine if this policy is a good fit for your company.
For more information on the time accrual policies, please contact the HR pros at Infinium HR.
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