Ever have an employee that tells you it’s their “legal right” to have Paid Time Off (PTO)/Vacation and they are going to sue the company because the law requires you to provide it to them. Well, if not, I know I have and the answer I give them is usually not what they want to hear and makes them even more upset.

You see, it is interesting how people have the impression vacation time is required by law, but did you know, in fact, vacation time is not regulated by any federal law.  As per the Department of Labor, the law “does not require payment for time not worked, such as vacations, sick leave or federal or other holidays”. These types of benefits are an arrangement between the employer and the employee. Employers choose to provide vacation time and choose to provide PTO in order to stay competitive and attract talent. That is why the actual policies of how much you receive vary from company to company and policies can change. Companies can even decide not to offer this benefit at all, although it probably would not be in their best interest.

Now that your eyebrows are almost reaching your hairline, there are some things that are worth noting once a company does decide to implement a vacation or paid time off policy because one the policy is implemented some regulations start.  Some states have created regulations around some of these policies.

  • First and foremost, companies cannot establish policies that are discriminatory against a protected class, Alternatively, they can, however, create different policies for different workgroups. For example: a company can have one vacation policy for their executive leaders and have another vacation policy for all other employees, but they cannot have one policy for women and one policy for men.
  • Companies also have the right to set up reasonable caps in their vacation/PTO policy and create an accrual rate based on tenure with the company.
  • They can also place waiting periods on the time an employee is eligible to use their time off. For example, a company might have a policy that says an employee can accrue time off from date of hire but limit when the employee can start taking the time off to 90 days after date of hire.
  • Businesses can also set up “use it or lose it” clauses but they should be careful with setting up this type of clause because there are some states that regulate the use it or lose it clause.
    • Some states consider vacation/PTO as an earned benefit making the accrued time an earned wage, meaning that the person is entitled to get paid this benefit either at the end of the year or the end of their time with the company because they already “earned” this benefit even though they did not work it.
  • Some, more progressive, organizations have opted to offer an unlimited vacation/ paid time off policy. The advantage of an unlimited policy is that it avoids some regulation. The disadvantage is that some employees can take advantage of the policy (although studies have shown it’s mostly not the case).

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