When the end of the year approaches, employees may take off before the new year to use up any unused paid time off (PTO) accrued. As a way to combat frequent, unexpected employee absences during year-end, businesses may offer a policy allowing employees to carry unused PTO into the next year.
This article goes in depth on how employers can manage policies that carry over PTO, or PTO rollover, including what it is, how it works, and the compliance rules your company must keep in mind before implementing policies.
What Is PTO Rollover
PTO Rollover, also referred to as PTO carryover, is defined as a type of paid time off policy that allows employees to keep their unused accrued paid time off from the current year and use it in the next year.
Types of PTO Rollover
There are two different methods when creating a PTO Rollover policy. Keep in mind that regardless of which method is used, all PTO Rollover policies must be compliant with any applicable federal and state leave laws.
The different types of PTO Rollover policies include:
- Limited Rollover: Employees are capped on how much unused paid time off can be carried over into the next year
- Example (Using Capped Rates): If the employee has 10 days of unused PTO and the cap rate is 30%, the employee may only carry over 3 days of unused PTO into the next year
- Example (Using Capped Hours): If the employee has 120 hours of unused PTO and the cap allows for only 40 hours maximum, the employee may only carry over 40 hours of unused PTO into the next year
- Unlimited Rollover: There are no limits on how much unused paid time off can be carried over into the following year
- Example: An employee saves 10 days of unused paid time off in one year and plans to use those days the next year for an extended trip
Use It Or Lose It PTO Vs. PTO Rollover Policy
Companies that do not have a PTO Rollover policy operate under a “Use It or Lose It” policy, where employees may only use the amount of paid time off during the year in which it was earned. Once the new year begins, any unused PTO is then forfeited by the employee, and the employee begins the new year with a fresh start.
Keep in mind that, depending on the business’s PTO accrual rates, a Use It or Lose It PTO policy can vary as to how much PTO they will start the year with.
For example, if your employees gain PTO using a rate based on their hours worked, an employee would then start the year with zero hours of accumulated PTO and would have to earn more hours throughout the year. In contrast, if your business frontloads PTO at the beginning of each year, employees would begin the year with the maximum hours of frontloaded PTO from the start of the year.
Why Companies Use PTO Rollover Policies
For many companies, having a PTO Rollover policy can be a great enhancement to employee well-being and overall company culture. Companies may also see a financial impact when managing PTO using rollover methods.
PTO Rollover policies can grant your business the following benefits:
- Reducing financial liability, particularly for paying out unused PTO to employees
- Attracting quality candidates
- Retaining top talent
- Reduce employee burnout throughout the organization
- Avoid scheduling conflicts at the end of the year with last-minute PTO use
Keep in mind that there may still be challenges you can face when implementing a PTO Rollover policy, such as:
- Tracking PTO Rollover and cap limits for each employee can add difficulty to PTO management
- Employees using large PTO balances that were rolled over can cause future scheduling conflicts if employees are out for an extended period of time
PTO Rollover Laws
It is worth noting that some states have elected to prohibit the use of Use It or Lose It PTO policies, preventing employers from requiring the forfeiture of their unused paid time off by the end of the year.
The states that prohibit Use It or Lose It PTO policies include:
- California
- Colorado
- Montana
- Nebraska
These state laws require employers to utilize either an unlimited or a limited PTO rollover policy, meaning employers must allow at least some unused PTO to carry over. Employers must also pay out any unused PTO upon an employee’s termination.
It is important to note that there are no federal laws regarding PTO or rollover, though other states may have specific leave laws that could affect PTO usage. Be sure to contact your state’s Department of Labor for more information.
Best Practices When Managing a Rollover PTO Policy
If you decide that a PTO Rollover policy suits your business needs best, you must take some key steps in constructing, communicating, and enforcing the policy to provide a smooth transition for the workforce the moment the policy becomes active.
Here are a few key steps on how a PTO Rollover policy can be set up and managed for a consistent PTO tracking process:
- Define the Policy: Understand which PTO Rollover policy you’ll operate, whether limited or unlimited, and ensure it's written in the employee handbook and explained during employee onboarding. Having access to an HR support center that specializes in up-to-date policy making from federal to state levels can help your business create effective policies and avoid damaging penalties from non-compliance.
- Communicate the Policy: Be sure to remind employees of the PTO Rollover policy, particularly before the year-end approaches, and detail any rollover limits if applicable.
- Encourage Regular Use of PTO: Managers should provide a model for employees on how to utilize PTO under the policy, while effectively promoting a positive, flexible company culture.
- Track PTO Balances Accurately: Your HR team should have resources that allow them to easily track PTO banks as well as accruals, particularly if a limited rollover cap is applied to your policy. Tracking PTO using leave management software can help with accurate accrual calculations and ensure PTO use fits policy requirements.
- Monitor PTO Use: Check in on how employees are using their PTO with the rollover policy in place, while also monitoring and preparing for high-volume seasons of the year that may require more employees to be present. Employers can limit the number of employees using their PTO on occasions where employees are needed by using employee scheduling software.
Final Thoughts on PTO Rollover
Allowing employees to accrue and maintain a greater balance of PTO as each year passes offers your company a competitive edge for recruitment and retention while boosting the overall workplace morale. However, as with any PTO policies, you should be cautious when evaluating the compliance requirements, as rules vary heavily by state.
A company’s best tool for managing PTO requires automated time and labor software to track employee accruals, and that offers flexible rules to allow policies such as PTO Rollover to be accurately calculated and recorded. Other tools, such as dedicated accrual tracking tools, leave management software, and scheduling software, can also streamline the tracking process, ensuring employees use their PTO correctly and can plan their shifts accordingly when taking leave.
Whether your company uses a PTO Rollover policy today or is looking into providing a policy for the workforce, contact us today for additional help on managing your policies.
