Q: What are wage payment laws and how do they impact my PTO policy?
A: Wage payment laws are state-specific laws that govern such issues as the frequency with which employees must be paid; the manner in which an employee can be paid, including direct deposit; when an employee must be paid when separated from employment, whether the employee is fired or quit; and what deductions can be taken from an employee’s wages. All wage payment laws are state-specific, none are federal.
Wage payment laws are particularly important when you are drafting a paid time off (PTO) policy. There is no federal law and there are no state laws that require employers offer PTO or vacation to their workforce. Once offered, however, there are a multitude of laws that apply. There are certain states that require accrued but unused vacation pay be paid out at termination. These states include California, Colorado, Illinois, Louisiana, Massachusetts, Montana, Nebraska, North Dakota and Rhode Island, if the employee has been with the company for more than one year. In the remaining states, unused but accrued vacation time must only be paid at termination if the employer has developed and published a policy that states accrued but unused vacation time will be paid.
The same is true for annual vacation time. Employers have multiple options for how to provide PTO for vacation to employees. Many employers are implementing the “use it or lose it” rule, which requires the employee to forfeit any unused vacation days they have accrued at the end of the year. They cannot cash out or roll it over to the following year. The majority of states allow an employer to have a “use it or lose it” policy as long as the policy is clear, in writing and the employee has a reasonable opportunity to take vacation before it is lost.
The states that do not allow a “use it or lose it” policy are California, Colorado, Montana and Nebraska. To guard against the banking of time and then excessive use, all states that prohibit annual “use it or lose it” policies do allow employers to cap the total amount of days an employee can accrue. Employers should think through this option carefully because in states where payout at termination is also required, the total cap on accrued and unused vacation can cause a significant impact on the “books” if large vacation banks are accrued and unused and the time is owed at termination.
Employers in certain states must also factor in paid sick leave to their PTO policies. Paid sick leave is separate and different from vacation leave. Certain states mandate that an employer provide paid sick leave to employees separate and apart from vacation leave.
The states and locales that required paid sick leave include Arizona, California (statewide and separately in Berkley, Emeryville, Long Beach, Los Angeles, Oakland, San Diego, San Francisco and Santa Monica), Colorado, Connecticut, Illinois (Chicago and Cook County only), Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico (statewide and Bernalillo County), New York (statewide, New York City and Westchester County), Oregon, Pennsylvania (Pittsburg, Philadelphia and Alleghany County only), Rhode Island, Vermont, Washington (statewide, SeaTac, Seattle and Tacoma) and Washington, D.C.
If you operate in these locations it is important to understand the applicable paid sick leave laws. Each location has different qualifiers based on number of employees in a location and size of the employer.
This column is provided by Ogletree Deakins, Atlanta, as part of a partnership with the American Rental Association (ARA) for ARA’s Human Resources Assistance Program. ARA members can receive a single sign on from the ARA webpage to a microsite specific to ARA on the Ogletree Deakins platform; get access to two 30-minute calls with an HR professional per year; access to an FAQ section as well as to Ogletree Deakins’ library of webinars; and access to Ogletree Deakins’ ARA-specific webinars. To learn more, visit ARArental.org/Manage-Business/HR.