Employers frequently encounter a common scenario: An employee who does not have enough accrued paid time off (PTO) to take time away from work requests time off before their next accrual. In a well-intentioned attempt to accommodate the employee’s needs, employers often consider allowing the employee to go into a negative PTO balance or advance the employee the PTO hours with the idea that the employee will repay the hours through subsequent accruals.
Although well-intentioned, setting such policies and taking such actions can create a host of legal and practical issues of which employers should be aware. Employers considering these policies should first consider this practicality: How likely is it that an employee who exhausted their PTO will be able to satisfy their negative balance? Employees who deplete their PTO rapidly enough that they require an advance may find it challenging to work off the negative balance, potentially leading to recurring advance requests.
To address this, employers may consider implementing a cap on the amount of negative PTO employees may accumulate. Setting a cap helps ensure that employees do not accumulate an excessive negative balance that cannot be feasibly repaid.
However, even with a cap in place, there is still a concern that an employee could leave the organization before fully offsetting their negative balance. Employers often have a solution for this problem: Deduct the value of the remaining balance from the employee’s paycheck. This is a risky approach, the legality of which depends on the wage and hour laws in the applicable jurisdiction. For example, as the Colorado Department of Labor and Employment (CDLE) has explained, Colorado law requires deductions for items provided to employees for their benefit to meet the following conditions:
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The employer has the employee’s written agreement to make the deduction;
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The written agreement must be enforceable and lawful;
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The deduction may not bring pay below minimum wage; and
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The things provided must be for the employee’s benefit, not for an employer’s cost of doing business.
Implementing an organization-wide policy that allows for negative PTO balances can be administratively burdensome, as each employee must enter into an agreement authorizing a paycheck deduction. Moreover, the deduction will not be able to go below the minimum wage in many jurisdictions. This means that the employer will not be able to deduct an amount that would bring the employee’s earnings below the minimum wage for the applicable pay period.
Depending on the number of negative hours at issue and an employee’s compensation, the employer may end up recovering little of the balance. Indeed, the cost to recover the amount after the employee’s departure (such as legal fees and court costs) may end up greater than the amount owed to the organization.
Ultimately, employers that authorize negative PTO or PTO advances should be prepared for the possibility that they may never fully recover the additional time off granted. For these reasons, employers should carefully consider the costs and benefits of implementing such a system and should consult with counsel before doing so. Employers Council can help you balance employees’ needs with administrative considerations when it comes to time off. Please reach out to our Member Experience Team if you have questions.
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