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PTO Policy

Our organization gives all of it’s employees their PTO hours at the beginning of the fiscal year. If an employee uses all of their allotted PTO time before it is “earned”, how do we handle that? And if they use all of the PTO before it is “earned” and then they quit, can we dock their last paycheck for PTO hours they took but didn’t earn?

It’s generally up to the employer to establish a policy or practice for employees who request time off after exhausting their PTO.

Some employers allow employees to accrue a negative PTO balance beyond their annual allotment. However, providing an employee’s entire PTO allowance at the beginning of the fiscal year means they won’t earn back negative leave time until the following fiscal year. This may not be very beneficial in your case since employees may end up with a large negative balance.

Another option is to adopt an unpaid personal leave of absence policy. The policy should include eligibility criteria, the application process, maximum amount of leave time, and the employer’s right to approve/deny the request on a case by case basis.

An employer may prohibit any time off beyond an employee’s PTO allotment. Any absences will then be subject to the employer’s attendance policy. Keep in mind, even if an employee exhausts their PTO, a covered employee is entitled to qualified leave under the federal Family & Medical Leave Act (or state leave law) and leave as an accommodation under the federal Americans with Disabilities Act (ADA).

An employee whose employment ends prior to earning their used PTO has a negative leave balance. It’s best practice to have a policy that clearly states how an employee will repay a negative leave balance upon separation of employment. Of course, such a policy must be in accordance with federal and state laws.

The federal Fair Labor Standards Act (FLSA) establishes compensation requirements.

Under the FLSA, employees are classified as either non-exempt or exempt.

Non-exempt employees must be paid for all hours worked and are subject to overtime and minimum wage requirements prescribed by the FLSA. Conversely, exempt employees receive a fixed predetermined salary for any week during which work is performed regardless of the quantity or quality of such work.

With non-exempt employees, as long as employees have been properly notified in advance of the unearned vacation time policy specifically their payback responsibility, the employer may deduct the amount advanced for the PTO from the employee’s final paycheck, regardless of whether overtime hours were worked in the final week or whether the deduction brings the employee’s pay below the applicable minimum wage. The hourly rate of pay deducted from the final paycheck must be the rate the employee was paid at the time of the advanced PTO.

Deducting a negative leave balance from an exempt employee’s final paycheck, on the other hand, is more problematic.

Deductions from an exempt employee’s salary are only permitted in limited circumstances, including for specified full day absences. So, if the records for the used PTO are detailed enough to clearly identify full day absences versus partial day absences than deductions for the full day absences are permitted under the FLSA as long as doing so doesn’t reduce the employee’s salary below the minimum salary for exempt status. If there is any doubt to the details of the records, it’s best to not make the deductions.

Of course, many states have wage payment or wage deduction laws that must be considered. Some specifically prohibit employers from recouping wage advances. A negative leave balance is essentially an advance on wages. Feel free to post a comment with the state listed. We can then research applicable state law.


This entry was posted on Thursday, August 4th, 2016 at 8:59 pm and is filed under
Benefits, Compensation, Termination.
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