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Switching PTO Policies? Make Certain Employees Do Not Lose Accrued Benefits

    Client Alerts
  • September 24, 2010

Employers frequently change policies governing employee vacation days, sick leave, and other forms of paid time off. While employers are generally free to prospectively change such benefits, state wage and hour laws restrict the ability of employers to retroactively deprive employees of some accrued benefits.

For example, if an employer reduces the amount of paid vacation time or PTO in the middle of the year, it cannot take away time that the employees already accrued under the old policy. The question of accrual depends on the language of the policy. Many policies provide for month-by-month accrual of vacation time throughout the year. In this case, the change in policy only requires the employer to protect the pro rata paid days accrued through the point in the year when the policy changes.

However, if the policy is silent as to the rate of accrual, state Departments of Labor will assume that the entire year's vacation pay or PTO balance accrues at the beginning of the year, and any mid-year policy change cannot affect that accrual. Employees must be permitted to use the vacation time or PTO accrued under the old policy.

Traditional sick days may be treated differently. Sick days are not an unconditional entitlement for employees, because their use is premised on the employee being ill before he or she is entitled to use the time. Therefore, in most states, employers can change the sick days policy mid-year without having to grandfather employees under the old policy.

Failure to follow these requirements constitutes violation of state wage and hour laws. Remedies can include double damages and any attorneys fees incurred by employees who seek to enforce their legal rights.