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.
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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 is PTO again?
PTO stands for “paid time off,” and it’s time that employees can take off of work but still receive pay for that time. It often consists of vacation days, sick days, and personal days. However, some employers choose to treat vacation, sick, and personal time separately. Exactly how you define and accrue PTO at your company is up to you; Just be sure to follow your local requirements.
What does a negative PTO balance mean, exactly?
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.
How can an employee pay back negative PTO hours?
An employee can pay back a negative balance in one of two ways:
- Continue working for their employer until they earn enough paid time off to have a positive balance; or
- 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 balance. If you do allow it however, your policy should be clearly written up in your employee 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 paid time off 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.