Paid Time Off (PTO)

I received a request from our CEO who is wanting to know if we can legally take away accrued PTO from an individual (at the individual's request) if that individual has an inordinate amount of accrued PTO. It would help with the financials in regards to potential expense. Our CEO was really asking for themselves, because they have more than they would need. However, they did ask if there was a way that it could be placed in limbo so that if their was a medical condition that resulted in them being off work for an extended period of time, would they be able to retrieve the PTO that had been taken away. We are not talking about the company buying the PTO back or even the person donating it to another individual. Any thoughts on this?


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  • You are entering sticky territory. You really need to go by your published policy. If the CEO wants to change the situation, he/she can by changing the policy.

    From an accounting point of view (my major), I have to tell you that this is a bad idea. What you are talking about is called creative accounting. If you take the liability off the books, then put it back at a later date, you are probably going to end up in legal trouble. Does the name ENRON ring any bells? If it goes off the books, it needs to go off permanently.

    If your CEO really wants to help the books, how about changing the policy to allow buybacks but at a reduced rate? A typical policy would allow employees to buy their PTO at specific times (say once a year at 50% of the value). This would reduce the value by 50%, and give those who rarely take time off a bit of a bonus. You could require buybacks to be done in full week increments, and require the accrual amount to be at a certain level (you can't buy PTO back unless you have 3 weeks accrued, or 5 weeks, or whatever you choose). You can be creative this way without incurring the wrath of the SEC, IRS, and other legal entities.

    Good luck!


  • Nae -

    Thanks for your feedback; I also felt like this would be a rather sticky situation if we attempted to do this. We already have a policy in place for employees to buy back their PTO at 50% for any hours over 240 at their anniversary date. Another way we have talked about addressing this is to have the carryover of accrued and unused PTO over a certain amount be placed in a sick leave bank. It is my understanding that we probably would not be required to pay out those days at time of separation.

  • I've been warned that "accruing" leave is implying that you are giving the employee a property. If you pay the unused leave on termination, then the accrual can be considered deferred compensation, which is ruled by ERISA. So, you allow employees to accrue (take ownership) of a property, and now the boss is trying to take it back from them. Sticky.

    I agree with the previous poster - only if you change the policy should you do this. Last March, we changed the maximum accrual amounts based on years of service. We informed employees of the change and gave them 12 months to use up any of the leave over the new maximum. Some haven't used it up yet, and will lose it. We feel we had legal ground to do this as we gave the employees the option of taking the leave (use the property) before we take it away.

    Here's where our policy gets really sticky: we break out annual leave and sick leave - because we don't pay out sick leave upon termination. Therefore, I had to modify the wording of the policy to show that employees do not "accrue" sick leave; instead they are GRANTED paid leave in case of their illness (or an FMLA protected illness of a family member) - but we still have the accrued totals on the books. But we do set a maximum on that, too (which just happens to be twice what FMLA requires...). Now perfect-attendance employees want to get paid that portion too when they terminate! And we have no buy-back or conversion policy.
  • State law also comes into play when playing around with leave policies. Some states mandate if leave is accrued,then it must be paid out...there is no use it or lose it type stipulation allowed.

    Some states, like us here in South Carolina, allow you to handle leave with a carefully worded policy. Ours is that we have a cap on how much can be accrued and if there is overage at the end of the year, then the excess of eliminated. If appropriate notice is not given at resignation, our policy also states that PTO may be forfeited.

    Again, some states would not allow employers to dictate what happens to an employee's leave and feels that it is something that has already been earned by the employee and the employer has not rights to it.

    I would think your employee could not have it both ways...give up the leave, but ask for it back if needed?

    Check with your attorney before proceeding.
  • I agree, Rockie - put a limit on the amount you can accrue, with use it/lose it for any excess. But consider state law, as you said, and you'd probably be asking for trouble to take away leave that an ee accrued before the new policy was in place.

    Here at HR Hero Land, we don't have a policy like that, but the boss has told some ees to take time off when they accumulate too much.

    James Sokolowski
  • Please email me your fax number or email address and I will send you an old PTO policy I have from my past employer. We did limit number of hours that could be "carried" but also had an "extended time off bank" that they wouldn't be paid for. Seemed to have worked well.
    E Wart
  • I too have the problem of excessive sick leave banks created oh so many years ago. (An upcoming retirement will be paid $30k in sick leave per the outdated policy)

    My plan is to change the policy; convert to PTO up to a maximum; those hours in excess of the maximum go into an extended illness bank (EIB). The EIB may only be used for illness/injury of the employee for absences over 7 days. The EIB has no cash value.

    This method appeared to meet all the union's complaints about changes to their sick leave policy but they still have not ratified the contract......
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