Paid Time Off Payout Upon Termination

Caitlin · August 2006

Our current policy for terminating employees is to pay them out upon their leave for sick time/paid time off for all accrued time up to one year. In other words, if an employee accrues 168 hours/ year of PTO but has 200 hours in his/her bank, we would only pay them out for 168 hours. It has been brought to our attention that this may not be legal but I cannot find any updated information regarding this. Any assistance that can be provided about current HR law regarding payout upon termination would be helpful.

Thanks!

Irie · August 2006

Check with your state department of labor.

Beverlee · August 2006

>Check with your state department of labor.

Agreed! Our state regs don't rule on how much- just when. We used to pay out in two week increments, along w/ payroll. Our statutes require all payments within 10 days. We changed our payouts, much to the chagrin of our Treasurer.

ray a · August 2006

There is no federal law, but you should check your state reg's. We do as you do, pay out only what is accrued. The DOL just expects you to follow your policy consistently, whatever it is.

Brother Bluto · August 2006

Agreed.

joycel · August 2006

During a conversation I had with our labor lawyer some time back it was confirmed that any accrued paid time off an employee had was earned time off at that point, and therefore compensable if it was still sitting there when they left. So if your state regs don't answer the question for you I suggest you contact your labor lawyer for advice. In my way of thinking the amount the company would pay out in paying the departing employee for their remaining PTO is far less than they'll pay out if the employee becomes disgruntled and sues the company (even if the company should win the suit).

atrimble · August 2006

I've recently been in a similar situation, and I recommend you confer with the administration as to how they consider the paid time off. Is it a gift, granted regardless of performance or attendance, or is it earned? If it is earned, and your policy says any of it is paid out upon termination, then most folks "in the know" would consider it deferred compensation, which the employee "owns" and is owed upon separation. If it is granted regardless of job performance (like some versions of sick leave), then it can be pulled off the books before separation occurs. Before doing something like that, though, take into consideration the morale of the employees staying on... My solution was to redefine the paid time off provisions in our personnel policy. I also use the words "accumulate" versus "accrue" (accrue = earned).

FrayWitzer · August 2006

Hi Caitlin --

This is one of the problems in using PTO here in Massachusetts as opposed to breaking the leave out in categories. You are required to pay an employee for all accrued, but unused vacation time upon termination, though you are not required to pay them for unused sick time. When you blur the line into PTO, it becomes an open issue. I've discussed it with the AG's office and they don't really take a firm position as to whether or not you can try to segregate out the sick time.

More directly, though, assuming that all of your PTO is considered vacation time, you cannot cap the payout.

Evan

Caitlin · August 2006

Thanks so much for your help. I actually did contact our attorney and received the attorney general's statement regarding payout of Paid Time Off upon termination as well as a sample policy to be used.

Paid Time Off Payout Upon Termination

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