Time Off

Scope

While there is no current law that requires a company to provide paid vacation, it may be required to provide other types of leave, whether paid or unpaid, in certain situations. For instance, several states require paid sick leave, and several others require unpaid but job-protected leave for victims of domestic violence.

Regulatory citations

• None

Key definitions

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Summary of requirements

Overtime pay. Paid time off does not count toward overtime, and does not have to be paid at an overtime rate. For example, if an employee gets 8 hours of holiday pay, and otherwise works 35 hours that week, the employee gets 43 hours of compensation, but none of it counts as overtime because the actual “working hours” only total 35. The same principle applies for vacation, sick leave, bereavement or funeral leave, or other paid time for hours not actually worked.

Required use of PTO. Employers generally have the right to mandate when paid time off may, or may not, or must be used. If a company provides paid vacation, it may generally require when the time must be used. Here are two examples:

• If an exempt employee wants to take a half-day off, the employer may require the employee to use vacation time or other PTO for the absence. Although the law prohibits the employee from reducing an exempt employee’s salary for a partial day absence, it may still reduce the employee’s bank of PTO or vacation hours, according to a Department of Labor (DOL) Opinion Letter.
• Non-exempt employees are entitled to wages only for hours actually worked, and the employer may generally require them to use vacation at certain times. For example, if company policy is that employees must work at least 38 hours to qualify for full-time status and certain benefits, and a non-exempt employee works only 36 hours in a particular week, the employer may require the employee to use vacation time to make up the difference and maintain full-time status.

Employers may also require that vacation be used only in specified blocks of time, such as four hours or eight hours at a time. These policies might tend to “use up” vacation time at a faster rate, but they can also encourage employees to take more time off than they otherwise might. For instance, if an employee wants to leave at 3:00 on a Friday, but company policy only allows for vacation use in four-hour increments, the policy might encourage the employee to leave at noon.

Payout at termination. In most cases, company policy (and past practice) dictates when and how PTO may be used. In many cases, if a vacation policy does not explicitly state that vacation will not be paid out when an employee leaves the company, the company may be required to pay out any earned vacation that hasn’t been used. Check state laws for specifics. Some states don’t consider vacation to be a “wage” but will still require payout at separation.

Even among states that require paid sick leave, the time does not generally have to be paid out upon separation.

“Use it or lose it” policies. About a dozen states consider earned vacation to be a “wage” that may not be taken away. These states usually allow companies to “cap” vacation accrual once a certain number of hours have been earned, but they do not allow a “use it or lose it” policy that takes away unused vacation. For example, an employer might be able to establish a policy that once an employee earns 200 hours of vacation, no further vacation will be earned until some of the earned time has been used.

Other states may allow “use it or lose it” policies, but expect that employees will have reasonable opportunities to use the vacation. If several vacation requests are denied, the employee may be able to file a claim for earned vacation time that couldn’t be used, even if the state doesn’t consider vacation to be a “wage.”

States with paid sick leave laws may require that unused time be carried over to the next year.