Saturday, August 10, 2013
Is vacation accrual and PTO (Paid Time Off) accrual the same thing? If the state regulations require accrued vacation time to be paid when an employee leaves, does this include PTO time? Payroll and Human Resource departments must make the proper interpretation of the state regulation regarding payment of accrued benefits.
The Fair Labor Standards Act (FLSA) does not require companies provide any type of paid vacation or sick time to an employee. Therefore the guidance related to vacation and sick time is set by each individual state. While no state requires a company to provide paid vacation time there is a movement in several states to mandate companies provide paid sick time. Connecticut is the only state that has passed a comprehensive sick time mandate. In addition no state requires accrued sick time be paid upon separation, but several states require accrued vacation time be paid when the employee leaves.
Many companies have moved to a PTO accrual system rather than offering separate accruals for vacation and sick time. The FLSA and most state guidance refer to vacation and sick time so companies have been in limbo trying to interpret the position regarding PTO.
There are actually three issues wrapped up in one larger concern.
- What are the state regulations regarding the payment of accrued vacation?
- What is the employers communicated policy regarding the payment of accrued vacation?
- Is PTO time considered equivalent to accrued vacation?
Most states leave the payment of accrued vacation time to the employer?s discretion, even allowing the employer to set parameters that must be met before the accrued time will be paid, such as an adequate notice or years of service.
Recently courts in Nebraska ruled on a case where a company refused to pay two employees their accrued PTO time claiming it was a ?hybrid benefit? consisting of time for vacation and sick time. While the employer conceded that Nebraska law requires accrued vacation time to be paid, the law did not apply since this accrued time was not specifically vacation time.
The court in Nebraska ruled that the employer promoted the PTO policy as a vacation policy as well as a sick policy. Therefore the employee believed that the PTO policy represented vacation time which regulations require to be paid.
Just a quick glance reveals the following states require accrued vacation time to be paid upon separation.
Alaska, California, Colorado, Connecticut, Hawaii, Illinois, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Nebraska, North Dakota, Oklahoma, Tennessee, West Virginia.
This list does not include several states that have no official policy but state courts have ruled that accrued time must be paid.
Considering the Nebraska court?s ruling it is possible it will be used by other states as a basis to rule in a similar manner on related matters.
It you have question about your state regulations regarding payment of accrued benefits or would like a review of your PTO policy or any payroll matter contact
Gary@IlluminareGroupInc.com or 615-542-1919.
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