A lot of people are still asking about PTO, Sick Leave and Vacation benefits. Instead of responding to each one individually, I thought I’d do a quick recap.
Most employers are not required to provide PTO, Sick Leave or Vacation benefits for employees. There are some exceptions, such as companies with employees in San Francisco. But, once you provide any of those benefits there are certain laws that restrict what you can and cannot do with them.
The difference between PTO, Sick Leave and Vacation. Sick leave is supposed to be taken for … you guessed it, when you are sick. California law requires employers who offer sick leave to allow employees to use up to one-half of the employee’s annual sick leave to care for family members. Vacation, on the other hand, can be used for taking time off work no related to illness; be it to take a day in the sun, go on a trip, or just lounge around the house. Some employers make a distinction by requiring vacation to be used only with advanced approval, whereas sick leave can be taken at any time. Paid Time Off (PTO), is usually considered a hybrid of sick leave and PTO since you can use the time for anything you want, including sicknesses and illnesses. The reality is, there is no difference between vacation and PTO. Some employers offer vacation and PTO, which has never made any sense to me. More commonly, employers have decided they don’t want to track vacation separately from sick leave and so they lump them together as PTO.
So what does it matter whether you call it sick leave, vacation, or PTO? The difference lies in how the law treats vacation and PTO. Vacation and PTO are an earned benefit. It is a wage. Once the employee earns the benefit, the employer cannot take it away without compensating the employee for the benefit. Sick leave, on the other hand, can only be used for specified purposes. An employee’s right to use sick leave is contingent upon the happening of some specific event (i.e., they get sick). If the employee never gets sick, then the employee never had the right to use the sick leave. That is one reason that employers do not have to pay out unused sick leave upon termination, but they do have to pay out unpaid vacation and PTO.
Having a bona fide sick leave policy allows employers, under certain circumstances, to reduce an otherwise exempt employee’s salary if the employee has exhausted his/her available sick leave and takes additional time off for sickness or illness. I’ve addressed this issue a number of times in prior articles. Since PTO can be used for illnesses and sicknesses, it qualifies as a sick leave policy under San Francisco’s Sick Leave requirement, employees can use it for family illnesses, and it qualifies as a bona fide sick leave policy allowing the reduction mentioned above. PTO is also an accrued benefit that, like vacation, must be paid out upon termination.
If our Handbook allows for PTO time to be taken at 1 hour intervals, does this mean I can have Exempt employees take PTO if they are leaving an hour early to go to the doctor? Or, does it still have to be a 4 hour interval?
The quick answer is, yes. You can always deduct PTO, sick leave or vacation leave in whatever increments you decide. The real question is whether you can reduce an exempt employee’s salary in increments of less than four hours when the employee has exhausted the available sick leave and PTO. The answer to that question is, maybe. I believe the answer is, yes, but there are no cases that have specifically authorized the reduced salary in cases where the policy allows employees to take sick leave and PTO in less than four hour increments. The rationale of the Conley case implies that you can, but that specific issue was not before the court. So, if you do reduce your exempt employees’ salaries for absences of less than four hours, you do so at your own risk.
If the companies policy is to entitle all employees to a paid holiday but someone ends up working that day anyway, is it just tough luck that the person is actually working when everyone else is being paid not to work?
Some employers may allow you to take the vacation day on an alternate date, or they may even pay a “holiday premium,” but the law does not require employers to pay extra for holidays or to allow employees to take holidays off. Arguably, if the employer offers paid holidays, but you are required to work on a particular holiday you could be entitled to an extra days’ pay, but I’m not aware of any cases that have agreed with that argument.
As an employer do I have to offer sick-pay? If so how do I determine the amount of sick days offered in one calandar year?
If you are an employer in San Francisco or some other city that requires mandatory sick leave, then the answer is, yes, and the amount of sick days will depend on what the specific regulation says. I’ve mentioned San Francisco’s Sick Leave law in a prior article. If your employees are not working in San Francisco or other municipality with similar regulations, then you do not have to provide sick days and the number of sick days is entirely up to you. It will depend on your company’s needs and what it takes to attract qualified employees.
The company I work for recently changed owners. The previous owners had a PTO yearly accrual for employees who have worked for the company 10 years or more at 25 days per year. The new owners have reduced this amount to 17 days per year. Is this legal? Do employees who have been affected have any recourse?
Employers can change or eliminate their PTO policies at any time. They cannot, however, take away accrued PTO. For example, if you worked the required 10 years and had 25 days of unused but accrued PTO, the company can lower the amount of PTO you will accrue in the future but they cannot take away the PTO you have earned. The company may not allow you take the time off, but when you quit or if you are fired or laid off the company will have to pay you the unused accrued PTO. The same is true for vacation wages, but not necessarily sick leave (remember, you are only entitled to sick leave if you meet the “condition precedent” of being sick – I don’t write the rules, I just interpret and enforce them).
There is another issue raised by the question regarding what happens when new owners take over a company and change the rules. The business structure (i.e., corporation, LLC, sole proprietorship, etc.) can affect whether you are losing benefits that are previously accrued and is probably left for discussion in a future article.
That’s about all I can do for today. There are plenty of more questions that I hope to address in future articles. Thanks for the feedback.
Phillip J. Griego & Associates
95 South Market Street, Suite 520
San Jose, CA 95113
Original article by Robert E. Nuddleman of Phillip J. Griego & Associates
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