With the end of the calendar year fast approaching, many employers are reminding employees that the company’s policy does not allow for the carryover of unused vacation time or paid time off (PTO) to the next calendar year or that there is a limit on the amount of time that may be carried over from one year to the next. Such limitations on unused vacation or PTO time carry over may be permitted under a state’s wage and hour regulations; however, it is dependent upon individual state regulations.
Some states view vacation and PTO as a form of wages and employers are not permitted to establish policies that have a “use it or lose it” clause. In these states, it is permissible for the employer’s vacation or PTO policies to state that unused time will be carried over from one year to the next, but once a specific maximum number of hours are banked, the accrual of additional time is stopped until the balance drops below this maximum.
Other state wage and hour regulations permit employers to maintain a “use it or lose it” policy that provides for employers to dictate a specific date by which all vacation time must be used or the time will be forfeited. In these states, employers may also opt to limit the amount of time that is permitted to be carried over to the next year.
Timely reminders to employees of an employer’s policy regarding carry-over of unused time will not only help prevent employee morale issues related to the loss of unused time, but will also help to reduce the number of employees who are requesting time off at year end. Keeping your employees apprised of the amount of vacation or PTO time in individual accounts shifts the burden of responsibility from employer to the employee to maintain accountability of tracking vacation or PTO accruals and banks.
Employers who have questions regarding the compliance of their vacation or PTO policies with individual state regulations should reach out to an HR Professional for review of the company policy.