Can I allow employees to have a negative PTO balance?

Yes, you can allow employees to have a negative paid time off (PTO) balance. There aren’t any federal or state laws on the matter, so it’s up to you whether you want to offer one.

However, it’s good to understand the ins and outs of adopting that policy as well as some potential complications. More on that below.

What does a negative PTO balance mean, exactly?

Having a negative PTO balance means that an employee takes PTO before they have accrued it.  In other words, the employer is advancing or loaning their employee the salary to cover the PTO time they take ahead of them earning it.

How can an employee pay back negative PTO hours?

An employee can pay back negative PTO in one of two ways:

  1. Continue working for their employer until they earn enough PTO to have a positive balance; or
  2. Have their employer deduct a small amount from their paycheck until the PTO salary advance is paid back. (The employer should make sure that the employee agrees in writing to pay for a particular negative balance through wage deductions.)

Do I have to allow employees to have a negative PTO balance?

No, you do not have to let employees take a negative PTO balance. If you do allow it however, your policy should be clearly written up in your handbook.

What happens if an employee is terminated or quits with a negative PTO balance?

If an employee is terminated or quits with a negative PTO balance, you might be able to deduct the salary that was advanced from their final paycheck.

The key word here is “might,” as it depends on your state laws. To make sure your company stays compliant, be sure to check your state’s Department of Labor website.

Federal law, however, allows the advanced pay to be deducted. Review what the US Department of Labor has to say.

Heads up: This article provides general information but it’s not legal advice. Please consult an HR expert or employment attorney for specific guidance on your business and situation.

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