A member asks…[We] are switching to a Paid Time Off (PTO) model in 2018 and are looking for guidance on how to handle payout of the benefit when an employee terminates from employment. We would like to offer each employee their full yearly amount of PTO at the beginning of the calendar year (or start date of employment for new hires). However, we are concerned about the budget impact of having to pay out for every hour of PTO an employee has amassed in situations where employees terminate early in the year. As such, we are exploring a policy in where an employee receives all of their PTO hours at the beginning of the year and is free to use those days for time off. But if they terminate, they would only be paid out for a prorated amount of the PTO balance they have based on the number of hours they worked during the calendar year in which they terminated. Would such a system, if made clear in our Personnel Policy and not impacting any time accrued under a previous policy, be acceptable? Alternatively, would the Library be able to cap the amount of hours paid out upon termination to an amount we determine (35 hours/70 hours)? … Any feedback you could provide would be greatly appreciated. [Emphasis added]
Libraries are service-intensive environments, which means they depend on their employees to report to work. However, since so much depends on staff, libraries are also wise to give their employees the tools for self-care and a proper work-life balance. A PTO policy is a great way to facilitate this.
What is “PTO?” Put simply, PTO is a finite amount of paid time off work (scheduled or unscheduled), to be used for vacation, short illnesses, “mental health days,” or whatever else is needed (note: often, bereavement is excluded). By not dividing time off into distinct types, PTO enhances employee privacy and flexibility—while decreasing the administrative burden of tracking the type of time.
The increasing use of PTO also makes sense as the ADA, the FMLA, and the upcoming New York Paid Family Leave Act have changed the landscape of medically-related time off.
Before we get to the heart of the member’s question, let’s start with some crucial basics. Under NY labor law, employers must have a written policy (or policies) governing sick leave, vacation, personal leave, and holidays.1 Under that law, as governed by the policy, the value of these “wage supplements” must be paid out at termination.
That said, conditions can be put on the terms of these “supplements”; according to the DOL the amount of time that can be cashed out “depends upon the terms of the vacation and/or resignation policy.”
This guidance is backed up by case law: New York courts2 have held that the required policies about PTO can specify that employees lose accrued benefits if such loss is a condition of the policy.
Among other things, conditions in PTO policies may cover the following:
How PTO accrues (annual, or more incremental);
How eligibility and earned amounts are governed (for instance, part-time vs. full-time, or based on years of service);
How much PTO can be paid out at termination;
If eligibility for payout survives termination for misconduct;
How “scheduled” and “unscheduled” (sick, emergency meeting, etc.) PTO is granted;
If a certain amount of reasonable notice before quitting is required to get the payout;
If a restriction on the number of employees using PTO at once is needed (this is critical for service-intensive environments like libraries).
In addition, any transitional/new policy can (and should) expressly address already accrued wage supplements (for instance, converting any unused vacation to PTO, or paying it out). As the member shows sensitivity to in their question, the new policy should never nullify wage supplements already accrued.
So, here we are, at the heart of the member’s question: can the amount of PTO cashed out at termination be pro-rated based on the time of year the resignation happens? The answer is: Once given, PTO should not be clawed back based on a variable factors, even those factors are set out in the policy. However, the solution is just as the member posits (and as is listed in the third bullet, above): uniformly capping the amount to be paid out, and applying it without fail.3
The nature of the library (public, private, part of a larger entity, etc.);
The bylaws and role of any board policy or committee (for instance, if there is a personnel or HR committee, this topic would be of interest to them);
Any union contracts or other contractual obligations at play;
The full suite of employee benefit policies, and the recruitment, development, and employee retention and compliance goals they serve;
The budget impact of any changes.
Once a library arrives at draft policy, prior to it being enacted, a lawyer should review the policy to ensure it is compliant, and works well with related legal obligations, contracts, policies and procedures. Further, it is ideal if the policy is reviewed by the treasurer, and/or the person preparing the budget, and/or the person who files any tax forms on behalf of the entity. I’m no accountant, but I know PTO is logged in a specific way on balance sheets, and it can have an impact on financial statements.
So once you have your draft PTO policy, invite your lawyer, your treasurer, and your accountant (there’s a joke in there somewhere, I know), over for a quick cup of coffee, and make sure everyone says you’re ready to launch!
1 Section 195.5 of the Labor Law states: Every employer shall notify his employees in writing or by publicly posting the employer's policy on sick leave, vacation, personal leave, holidays and hours.
2 [See Glenville Gage Company, Inc. v. Industrial Board of Appeals of the State of New York, Department of Labor, 70 AD2d 283 (3d Dept 1979) affd, 52 NY2d 777 (1980).]
3 PTO can also be given on a more incremental basis, but this nullifies some of the flexibility benefits it can bring. That said, the policy should consider when an employee first qualifies, and if starting employees get a pro-rated amount based on their start date.