The short answer is yes, you can allow employees to have a negative paid time off (PTO) balance. Whether you want to offer negative PTO is a policy choice that is left to you and your business. However, it’s good to understand the ins and outs of adopting a negative PTO policy as well as some potential complications.
This article explores negative PTO, how it is calculated, requirements for paying it back, and possible legal repercussions associated with a negative PTO balance.
What is PTO, and how does it differ from other types of leave?
You can’t make an informed decision about whether or not to allow for a negative PTO balance without first understanding the specifics of PTO itself.
The acronym PTO means “paid time off,” and it’s a set number of days or hours that employees can take off from work while still receiving pay for that amount of time.
A time-off policy can include vacation days, sick days, holidays, and personal days, during which employees are paid but not working. Some workplaces even offer unlimited time off.
PTO doesn’t include unpaid or paid medical leave, family leave to care for loved ones, or parental leave. These types of leave are protected under the Family Medical Leave Act (FMLA) and Paid Family and Medical Leave (PFML) laws in certain states.
While some employers choose to treat vacation, paid sick leave (i.e., earned sick time or sick days), and personal time separately, others create PTO “banks” where they’re all combined. Exactly how you define, offer, or accrue PTO days at your company is up to you. Just be sure to follow your local requirements when setting up your PTO policy.
What is a negative PTO balance, and how is it calculated?
Having a negative PTO balance means that an employee takes paid time off before they have accrued it.
In other words, the employer is advancing or loaning their employee the salary to cover the paid time off they take ahead of earning it. So while “negative PTO” doesn’t sound like the most positive of phrases, it actually represents a more flexible policy for when PTO can be taken based on an employee’s needs as opposed to an employer’s timetable.
PTO balance is calculated by subtracting the amount of PTO used from the amount of PTO earned. So if an employee uses 32 hours of PTO even though they’ve only earned 24 hours, they then have a balance of negative eight hours of PTO.
Note that this is different from giving an employee all their PTO as accrued on their first day. You may not want to do that, because if the new employee resigns shortly after a start date, you’ll have to pay them for their unused PTO (unless you have an unlimited vacation policy).
Do you have to allow employees to have a negative PTO balance? Should you consider flexible PTO?
No, you do not have to allow a negative PTO balance by letting employees take paid vacation time, sick time, or another type of PTO absence in advance of earning it. However, having an accrual policy with a PTO program can help with employee retention, as part of providing an environment that promotes work-life balance.
Some things to consider regarding a negative PTO policy are that you open yourself up to potential human resources issues as well as legal risk if deductions don’t comply with wage laws. (This is covered in more detail below, so keep reading!) Also, it can add to the complexity of your accounting and time-tracking processes.
Some employers choose to offer flexible PTO, sometimes known as unlimited PTO. This means there isn’t a cap on time off. It’s a policy that’s been trending for some time in certain industries like the tech sector, and that can be appealing for employee recruitment and retention. Here’s a guide on unlimited PTO with a template to use if you’re considering rolling it out to employees.
Overall, whether or not you allow unlimited PTO or a negative PTO balance—or a hybrid arrangement—your company’s policy should be clearly written up in your employee handbook.
How can employees avoid accruing a negative PTO balance?
The ability to accrue and use PTO is a benefit meant to provide peace of mind for your employees, not cause them added stress. If you allow for flexible PTO use, there are a few things you can do to help your employees avoid racking up a large negative balance.
Clearly state your PTO policy in your employee handbook, and ensure that your workers have signed off on it.
Encourage employees to strategically plan in advance how they will use their PTO each year.
Suggest to your employees that they consider saving some PTO hours to use in case of emergency or unexpected circumstances.
Encourage employees to use PTO in smaller increments spread out throughout the year.
Ensure your employees also understand the details of taking unpaid leave compared to accruing a negative PTO balance.
How can a current employee pay back negative PTO hours?
If a current employee does accrue a negative balance, they can pay it back in one of two ways. They can:
Continue working for their employer until they have a positive PTO balance by earning enough paid time off for the number of days they were out; or
Have their employer deduct a small amount from their paycheck for each pay period until the PTO salary advance is paid back. (The employer should ensure the employee agrees in writing to the negative balance repayment through wage deductions—discussed in more detail later.)
Can employees be required to pay back negative PTO when their employment ends?
When an employee is terminated or quits with a negative PTO balance, you might be able to deduct the salary that was advanced from the employee’s final pay. Whether or not this is possible can depend on several factors, such as:
Policy communication. Employers should clearly state their negative PTO policy and how the balance is handled—including details on deduction from an employee’s final paycheck—at termination.
Employee consent. Employees should agree to the policy in writing, acknowledging their understanding of how a negative PTO balance will be deducted.
Employee type. Their employment status as exempt or non-exempt employees can determine whether a negative PTO balance can be deducted when the employee leaves.
State law. There are some states, like California, that prohibit employers from deducting a negative PTO balance from an employee’s final pay.
What are the legal implications of a negative PTO balance?
The legal implications of a negative PTO balance depend significantly on the factors mentioned above. To protect both parties, all employers should secure a signed agreement from their employees on this matter.
Another important thing to note is that making deductions from an exempt employee’s final pay can violate employment laws. Because state laws vary, be sure to follow your state-specific rules and regulations according to your state’s Department of Labor website. If an employer fails to comply with state laws, fines and penalties may be imposed.
