The Charlotte Observer recently reported on a controversy involving a long-term Mecklenburg County employee accused of misconduct, who was paid almost $60,000 in accrued but unused paid time off following her departure from employment. This situation caused county commissioners to seek an explanation as to why employees are permitted to amass such large balances of accrued time.
This situation serves as a reminder for employers to review and possibly amend their vacation/PTO policies to avoid unintended liabilities. In North Carolina and South Carolina, employers are generally free to establish conditions for payment and forfeiture of paid time off, typically through employee handbook procedures. However, if the policies are silent on these points, they will be interpreted in a way most favorable to the employee. In addition to provisions governing accrual and use, the policy should clearly establish rules dealing with unused paid time off, especially in the context of an employee who leaves employment.
These policies should explain what happens to accrued but unused time at the end of the year. The employer can establish a "use it or lose it" policy, requiring forfeiture of unused time, or could permit a rollover and accumulation of time in future years. This accumulation can be capped at a maximum level. Some employers "cash out" accrued but unused time at the end of the year, paying employees a portion of their wages for unused time.
The vacation/PTO policy should also explain payouts to employees upon departure from employment. Unlike some states, North Carolina and South Carolina allow employers to decline to pay accrued time off balances if the policy clearly sets forth this choice. Some employers establish conditions for payment, such as an employee who resigns providing some amount of advance notice.
Employers that change vacation/PTO policies cannot deprive employees of fully accrued benefits. However, the payout rules can be changed if the employee is permitted a reasonable opportunity to use accumulated time. Advance thought and planning can prevent situations where employers are faced with significant liabilities in accrued payments to departing employees.