Paid time off benefits can be a powerful component in an organization’s total rewards package. Offering paid sick leave and vacation benefits helps employers compete in the talent market, while also increasing wellness and decreasing burnout. However, they can be a compliance headache if not administered in accordance with state leave laws. In 2011, Connecticut became the first state to mandate paid sick leave, and these states in the Employers Council region have followed suit:
Arizona – The Fair Wages and Healthy Families Act (2017)
Colorado – The Healthy Families and Workplaces Act (2021)
New Mexico – The Healthy Workplaces Act (2022)
Additionally, Massachusetts, Nevada, Oregon, Washington, California, Maine, Michigan, New Jersey, Rhode Island, the District of Columbia, Maryland, Minnesota, New York, and Vermont currently require employers to provide sick leave to their employees. While these mandates are not new, employers continue to struggle with finding a balance between compliance and business needs. One critical decision is whether to separate sick leave and vacation leave, or combine them into a single Paid Time Off (PTO) bank.
This decision has various implications related to compliance, employee satisfaction, and alignment with the organization’s philosophy and strategy. By understanding the considerations related to this decision, employers can mitigate the risk of noncompliance, streamline the administration of complex policies, and enhance alignment with organizational objectives.
To ensure an informed decision, employers must understand the differences between combining and separating time off, as well as the advantages and disadvantages of each option. Combining sick and vacation time into one PTO bank creates flexibility for employees to use the time at their discretion and simplifies administration. On the other hand, a common complaint about PTO is that employees may call out more frequently with little to no notice. A PTO bank also increases financial liability in states like Colorado and others that require payout of earned and unused vacation upon termination. Separating time off into distinct banks makes compliance with state laws easier, promotes the use of sick leave for appropriate reasons, provides employers more discretion in administering vacation policies, and reduces financial liability related to the payout of accrued/earned time at termination. Separate banks are not without some downside, though, as they may be viewed by employees as less flexible and may be more complex for employers to administer.
Employers with multi-state operations face additional complexities as they navigate a patchwork of different accrual rates, considerations regarding the use of a front-loading method versus an accrual method, carryover requirements, and documentation and record-keeping requirements. Such differences make a one-size-fits-all approach legally risky. Nuanced state laws require a nuanced approach.
Whether operating in a single state or across multiple states, employers should also ensure that time-off benefits align with their total rewards philosophy, strategic objectives, organizational values, and priorities, such as flexibility, equity, or retention. Further consideration should include the culture of the organization in relation to transparency, autonomy, and compliance. Employers Council members can utilize our white paper, "Developing a Total Rewards Philosophy," to evaluate current practices and policies.
When evaluating current policy, it is imperative to identify any applicable state requirements. The CCH Multi-State Chart Builder is a valuable tool for assisting members in identifying applicable state laws. Next, evaluate policy structure; by considering both state compliance requirements and cultural fit, employers can decide if separate banks for sick and vacation or a combined PTO bank is the best fit for the organization. Then, access our resources, including sample PTO policies, as well as separate policies for sick leave and vacation.
Consulting and Enterprise members may utilize consulting services for assistance with a tailored solution. Due to the complexity related to accrual, carryover, and payout, if an organization transitions from one method (i.e., PTO) to another method (i.e., separate vacation and sick), it is strongly recommended to consult with our team of HR professionals and employment law attorneys to mitigate and reduce risk.
Finally, communicate the policy clearly to all staff. Set clear expectations for employees about usage and notification protocols. As most time off requests are managed at the team or department level, train supervisors and managers in policy application and compliance. Ensure leaders understand how to balance obligations under state laws with potential attendance and behavioral issues, so they can effectively address compliance and business needs.
Organizations benefit from regularly reviewing their time off policies to prevent costly legal issues later. This evaluation ensures that policies strike the right balance between compliance and efficiency, while remaining aligned with dynamic business priorities and an evolving workforce.
Employers Council’s attorneys and HR consultants can help you navigate the rules of paid time off plans. If you have any questions or need assistance, please contact us.
Brandy Walker is an HR Consultant with Employers Council.
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