Legal Clinic

PTO Questions Answered

PTO Questions Answered | Human Resource Executive Online This month's column explores paid-time-off banks, including whether employers need to pay terminated employees for unused paid-time-off time, whether PTO time can be mandated for use during a company-set holiday and whether a sick worker can be sent home -- and his or her PTO bank docked.

Monday, September 8, 2008
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More employers are utilizing a system of paid time off in lieu of offering combinations of vacation time, sick leave or other leave policies. Essentially, PTO allows employees to draw from a "bank" of a specific number of days whenever the employee requires a day off. The defining feature of a PTO system is that the nature of the leave is irrelevant because missing a day of work simply depletes the bank by one day. As September is a month that brings with it the beginning of the fall holiday season as well as the cold and flu season, I have dedicated this column to your PTO questions.

Question: In North Carolina, are employers required to pay out unused PTO in the event of termination? Does this state law differ substantially from other states?*

Answer:  Generally, no. Employers in North Carolina are not per se required to pay out unused paid time off in the event of a termination. This is because there is no legal authority in North Carolina that mandates statutory recovery of unused PTO in the event of a termination. Such payment is governed by the employer's policy or regular business practice. 

Further, North Carolina's Wage and Hour Act states that employees "whose employment is discontinued for any reason shall be paid all wages due on or before the next regular payday ... ." N.C. Gen. Stat. § 95-25.7 (2008). While the Act does not directly identify the phrase "paid time off," the statute indirectly implicates it because the statute defines "wage" to include sick pay, vacation pay and "other amounts promised when the employer has a policy or a practice of making such payments." N.C. Gen. Stat. § 95-25.2(16) (2008). 

That said, unless the employer has a policy or practice in place that requires such, a North Caroline employer is not required to provide their employees with a vacation-pay plan (i.e., paid time off). N.C. Gen. Stat. §95-25.2(16) and § 95-25.12 (2008). Therefore, if an employer's particular policy does not include a provision allowing for paid vacation time or, in other words, PTO, the employer will not be required to pay out vacation time (or PTO) to an employee in the event of that employee's termination.

Importantly, however, if the employer had a vacation plan in place during all or part of an employee's tenure that is no longer in effect at the time of the employee's termination, the employer will nonetheless be required to compensate the employee for vacation time accrued under the old plan. See Narron v. Hardee's Food Sys., 75 N.C. App. 579 (1985). Further, North Carolina, like most states, requires that employers provide their employees with written or posted notice of any change to a vacation plan if said change will result in the forfeiture of vacation time or pay. N.C. Gen. Stat. § 95-25.12-13 (2008). 

Similar to North Carolina, the state of Arizona does not identify by name the phrase "paid time off" in its relevant statute, but it does, however, define wages as including "sick pay, vacation pay ... and other amounts promised when the employer has a policy or a practice of making such payments." Ariz. Rev. Stat. § 23-350 (2008). Therefore, in Arizona, employers will be required to pay out vacation time and other PTO if their employment policy and practice requires such.

Conversely, Nevada employees are not entitled to receive payment for unused vacation time or similar benefits upon termination because Nevada's wage-and-hour laws require payment only for time that an employee works. Nevada Office of the Labor Commissioner, Frequently Asked Questions; See generally Nev. Rev. Stat. Ann. § 608.012 et seq. (2008). 

As PTO requirements differ from state to state, and from employer to employer, employers should check their local wage-and-hour statutes and applicable employment contracts for guidance on how to handle unused PTO in their jurisdictions. Further, employers should also review the language in their employment contracts or collective-bargaining agreements (to the extent that they exist) to make sure that their practices are in line with their policy and contractual requirements.

Question: My company is located in New York and we want to close the office this year on the Friday after Christmas and New Year's Day in order to provide the employees with an extended amount of time off. Each employee in our organization is given a significant amount of PTO days each year -- and most employees (all of whom are exempt) have a problem using all of those days. We would like to require all employees to use PTO days when we close the office those days. Is this legal, in violation of the FLSA or New York employment law? Does New York law differ substantially from other states?

Answer: Requiring employees to utilize a PTO day when the employer closes the office is neither a per se violation of New York State employment law nor the Fair Labor Standards Act. The answer to your question depends on whether the employees are subject to an employment contract or collective-bargaining agreement, or whether the employment is "at-will." Assuming there is no contract in existence (i.e., the employment is at will), New York employers are free to close their business on any day they choose and similarly may pay or not pay for any holidays that they choose. This holds true whether or not the employees in question are exempt. 

In New York, "payment for holidays, sick time or vacation -- i.e., payment for time not actually worked -- is not required unless the employer has established a policy to grant such pay." See New York State Dep't of Labor -- Wages and Hours: Frequently Asked Questions

Moreover, any employer who provides benefit policies (including PTO) is "free to impose any conditions they choose." Id. Looking at these principles in tandem and assuming that no contracts are in place, an employer in New York may freely close their business on non-holidays and make employees utilize PTO days. 

If the employment relationship is not "at-will," an employer may still be able to close the business and make employees use PTO because the right to be paid for holidays is a "creature of contract," not a right pursuant to law. 9 Bornstein, Gosline and Greenbaum Labor and Employment Law § 249.02 at 249-3 (2007); See also U.S. Department of Labor -- Wages and Hours Worked. ("Holidays and vacations are generally a matter of agreement between an employer and an employee.") Therefore, the terms of the applicable employment contract will trump any default New York and federal rule that could potentially limit a New York employer's ability to mandate the use of PTO. 

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As always, however, all New York employers who wish to change their PTO policies must notify their employees in writing or by "publicly posting" the new policies on sick leave, vacation leave, personal leave, holidays, etc., pursuant to New York Labor Law § 195(5). Many states have similar posting requirements, but a prudent employer (at-will or otherwise) should check with local rules and/or the state department of labor to ascertain the specific procedures that are required. 

Question: If an employee is sick, they are required to use a PTO day? Many employees would rather come to work with a cold or flu bug than use a PTO day. This, in turn, usually results in others in the office catching the bug. Can we send the person home from work and dock them a PTO day?

Answer: Yes. As long as there is no contract requiring otherwise and as long as the decision is not motivated by discriminatory animus, employers are free to send sick employees home and dock them a PTO day. Further, if an employee is Family and Medical Leave Act-qualifying and has a "serious health condition," and if provided for in the employer's specific company policy, the employer may require that the employee substitute the PTO leave day in lieu of unpaid FMLA leave. See 29 C.F.R. 825.207 (2008). 

In your example, a simple cold would likely not qualify as a "serious health condition," but it is possible that a cold or flu with complications, or another highly contagious disease would qualify. See 29 C.F.R. 825.114 (2008); Thorson vs. Gemini, Inc., 205 F.3d 370, 377 (8th Cir., 2000) (holding that the issue of "serious health condition" is one of mixed fact and law); See generally Miller vs. AT&T Corp., 250 F.3d 820 (4th Cir., 2001); Rankin vs. Seagate Techs., Inc., 246 F.3d 1145 (8th Cir., 2001). 

Thus, employers should be cognizant of the relationship between PTO and the FMLA and also the differing opinions on what constitutes a "serious health condition." 

If an employer were to implement such a procedure, the employee's guaranteed unpaid FMLA leave would run concurrently with the PTO leave, therefore resulting in the reduction of the 12-week unpaid FMLA leave "bank" by one PTO day. (See my April 21 column.)

As stated previously, an employer who is subject to a contract or collective-bargaining agreement would need to comply with the provisions outlined therein with regard to sick leave. Moreover, an employer would have to comply with its jurisdiction's local rules on notice and record-keeping if it incorporates any new policy. 

As a practical matter, however, an employer should probably ask the employee first to voluntarily use his/her PTO before sending the employee home on involuntary leave so as not to chill the employment relationship. 

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