So You Want To Convert All Paid Leave To PTO?

February 17, 2018

So You Want To Convert All Paid Leave To PTO?

As most business owners know, California law on sick leave seems to be ever-evolving. And trying to harmonize and keep track of this along with paid vacation leave can be extraordinarily difficult. To simplify the administrative effort in tracking leave balances, many employers are moving to a one-leave-bucket model and calling all paid leave paid time off (PTO). But how does this satisfy California’s requirement that all employees accrue sick leave, subject to a few exceptions?

Sick Leave

Let’s start with a refresher. California law requires that all employers provide employees with a minimum of 1 hour of paid sick leave for every 30 hours worked. Other methods of accrual are acceptable so long as the employee is provided at least 3 days of sick leave annually. Sick leave can be used starting 90 days after commencement of employment. Sick leave can also be carried over from one year to another, but the employer may cap accrual at 48 hours. Accrued sick leave need not be paid upon termination.

Vacation Leave

Paid vacation leave on the other hand is not mandatory under California law but many employers offer it as a benefit nonetheless. Since this is a discretionary benefit, employers can craft accumulation and use policies that serve both business and employee needs. Once adopted, however, certain rules apply. Accrued vacation leave does not expire and unlike sick leave, accrued vacation leave must be paid upon termination. Vacation leave is also considered a wage under California law and accrual must occur as labor is performed.

Advantages of Combining

The biggest factor driving my clients to switch to a PTO policy is administrative efficiency. All paid leave can be managed in one system and the need to ensure that employees are using the appropriate form of leave for the appropriate purpose abates. It’s my experience that employees also appreciate the flexibility of using accrued leave as they desire without having to justify the absence or reveal potentially sensitive information.

Disadvantages of Combining

Characterization of sick leave as PTO changes the characteristic of the leave from sick leave to what amounts to vacation leave. This means that upon termination, the employee must be paid for all accrued leave even if that leave, had it been separately categorized, includes accrued sick leave hours. While a disadvantage, many businesses find the administrative savings worth the cost associated with effectively paying for sick leave upon termination.

Putting it All Together

Lumping all leave into PTO does not alleviate an employer’s obligation to satisfy California sick leave law or laws pertaining to vacation leave. This means that a PTO program must accrue at a rate no less than the sick leave accrual rate, but must also accrue as work is performed which is required of vacation leave. If moving to PTO, the employee handbook or other controlling document should include a defined method of accrual, carryover provisions, and accrual caps, all of which are appropriate. Employers must also be certain that these minimums and limitations are not contrary to California’s sick leave laws.