Q: Can You 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 negative PTO.

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

What’s negative PTO?

An employee has a negative PTO balance when they take paid time off before they have accrued that time.

What does PTO stand for?

The acronym PTO means “paid time off,” and it’s a set number of days or number of hours that employees can take off of work but still receive pay for that amount of time. Some workplaces even offer unlimited time off.

A time-off policy can include vacation days, sick days, holidays, and personal days. Basically, it’s for any days employees are paid for when they’re not at work. It 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 exactly does a negative PTO balance mean?

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.

Note that this is different from giving an employee all their PTO as accrued on their first day. You wouldn’t 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).

How can an employee pay back negative PTO hours?

An employee can pay back a negative vacation leave or balance in one of two ways:

  1. 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
  2. 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 make sure that the employee agrees in writing to pay for a particular negative balance through wage deductions.)

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 more than perks—one that encourages work-life balance.

Some employers even offer flexible PTO, also 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 while you may think this means you don’t have to track used or unused PTO, you will still want to in order to manage the benefit properly, not to mention your state may require a minimum amount of time be offered for certain leave, such as sick days.

Plus, while unlimited PTO can promote a dynamic where employees exercise their agency to take time off as they need it, the flip side is that employees may actually not end up taking enough time off. If you find that’s happening, you may want to evaluate why that’s the case. It may be an indicator that your company culture isn’t supporting it somehow and needs to be improved, or if your business and employees would be best supported by a reasonable amount of preset PTO.

Here’s a guide on unlimited PTO with a template to use if you’re planning on rolling it out to employees. You’ll want to be clear that time off is still subject to a manager’s approval and that unlimited PTO is separate from disability benefits, workers’ compensation, or leave covered under FMLA. Be comprehensive with your disclaimers, including how unlimited PTO is not accrued, which means it will not be paid out when employment ends. Also cover how PTO under that policy doesn’t count as hours worked with respect to overtime pay for nonexempt employees who are paid hourly rates and nonexempt salaried employees.

Overall, whether or not you allow unlimited PTO or a negative PTO balance, your company’s policy should be clearly written up in your employee handbook.

What happens if employees don’t use all their PTO?

It’s up to you and your human resources department (if you have one) whether or not your leave policy allows employees’ accrued PTO to carry over after end of the year to the following year (also known as a rollover). Or you might adopt a use-it-or-lose-it approach to your time-off program, saying any earned PTO must be used within a fiscal or calendar year. Some companies prefer the latter direction to ensure that their staff aren’t overworking themselves.

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 the employee’s 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.

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