Time Off from Work: Principles for Structuring PTO Policies

Author, Jadyn Brandt, Client Communications Coordinator, Rancho Mesa Insurance Services, Inc.

Paid time off (PTO) policies play an important role in how employers structure and support time away from work. Clear and well-documented PTO policies are a necessity for organizations to stay compliant, avoid employee confusion, and ensure proper use of leave time.

In California, the Department of Industrial Relations maintains that there is no legal requirement for an employer to provide PTO to employees (i.e., vacation time), not to be confused with California’s required paid sick leave. However, if an employer chooses to provide PTO, they must adhere to certain restrictions including: PTO accrues as it is earned, and “cannot be forfeited, even upon termination of employment, regardless of the reason for the termination.”

Employers can place a “reasonable cap” on PTO benefits and, “unless otherwise stipulated by a collective bargaining agreement, upon termination of employment all earned and unused vacation must be paid to the employee at his or her final rate of pay.”

Additional California exceptions to PTO:

• Employers can prevent employees from earning PTO during a specific period of time at the start of employment.

• Employers can exclude certain classes of employees including part-time, seasonal, or probationary workers.

• Employers can control the amount of PTO taken at a particular time.

• Employers can pay out employees for all PTO not taken at the end of each year.

Additional California restrictions to PTO:

• Employers cannot enforce “use it or lose it” policies in regards to PTO, the unused balance must either be paid out or rolled over into the following year. However, employers may limit PTO accrual once an employee has hit the established cap.

• Employers cannot deduct “advanced” vacation from an employee’s final paycheck if they quit/are terminated before that vacation is accrued.

Rancho Mesa’s RM365 HRAdvantage™ portal provides PTO resources for businesses across all states. Sample policies are available to be customized to your organization’s protocols and state regulations. Individual states may have additional requirements, so consult an HR expert or attorney who is knowledgeable about your state’s laws.