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We’ve compiled a list of the 100 most commonly asked questions we have received on the federal Fair Labor Standards Act (FLSA) overtime regulations.
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July 26, 2007
Managing PTO Without Alienating Employees or Violating the Law

Communication and consistency are the keys to a workable PTO (paid time off) program, say attorneys Aliza Herzberg and Wade W. Herring, II. Their comments came during a recent audio conference sponsored by BLR.

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Herring is a partner with Hunter, Maclean, Exley & Dunn, P.C. in Savannah, Georgia; Herzberg is a partner in the law firm of Olshan Grundman Frome Rosenzweig & Wolosky LLP in New York City.

What Is PTO?

PTO typically refers to a system which erases the distinction between types of time off, lumping together various types of leave, personal days, and sometimes sick days.

Advantages, says Herring, are that you are treating employees like grownups who are able to manage their own bank of time off; you give employees the perk of customizing their time off to their own needs; and you find fewer administrative headaches because the company doesn't have to sort out and track many different kinds of leave. HR is relieved of its responsibility as hall monitor about how employees use time.

On the downside, people with PTO tend to use more time off, and there is the danger that people will be "spendthrift" with their time and
run out.

As PTO programs become more popular, employers are encountering challenges in making them work smoothly. Herring and Herzberg offered tips for employers.

Communication Is Key

Herring says that communication is the key to making PTO programs work. Too often, he says, supervisors don't deal with problems early on and then the situation deteriorates to the point where both the supervisor and employee are angry.

One factor behind this, he says, is that no one likes conflict. So supervisors just do nothing, thinking that the problem will fix itself or go away.

Another possibility is that the supervisors are trying to be nice to the employees by giving time off and looking the other way rather than doing the close monitoring that is needed.

Finally, supervisors just may not know what to do, or they may be lazy, or they may choose other priorities. They may know, for example, about a leave that's FMLA eligible, but they just don't bother with the paperwork.

Herring notes that a typical problem that arises when there is a lack of communication is that an employee has a workers' compensation injury and should have gone to an approved doctor, but picked out a doctor not on the approved list. Then there's a hassle that could have been avoided simply by communicating.

It's true, Herzberg agrees, that managers often don't want to take the time to document little things like attendance and punctuality. Another factor is that many companies have experienced rapid growth and they now have a lot of new, inexperienced supervisors who haven't been trained.

Make sure that supervisors get trained, she says, and that they know to be upfront with employees and to write things down before they get out of control.

Aging Workforce

Herring notes that our workforce reflects our society, and our society is aging. Disabilities in the workplace are on the rise. Employees are impaired by age, obesity, and various other ailments. The boomers don't want to retire and the companies need them.

However, to retain boomers, companies must realize that employees have demands on time outside of work that they intend to honor. So the challenge for employers is how to deal with this, how to follow the law, and how to keep employees happy.

Making PTO Work

Here are some tips from Herzberg and Herring:

  • Revise your handbook and write policies. Be sure that everything agrees about accrual of PTO. The handbook, the policies, and the payroll department procedures must all agree. Remember that even in more pro-business states, policies and handbooks are quasi-contractual requirements, says Herring. You'll be expected to follow them, so it's important to draft policies and handbooks carefully in the beginning, and to look them over from time to time to be sure that they still reflect what you want.
  • Think through compensation issues. Typically, PTO is considered part of compensation, so it has to accrue and be paid out if not used, says Herzberg. Systems have to support this.
  • Make sure there is a procedure for letting employees know how they stand with their leave banks.
  • Request explanations for unscheduled absences. If employees report PTO as sick leave, request a doctor's note. If employees are gone for more than 3 days, require a fitness for work note. Later,
    when you are dealing with attendance problems, it's important. Didn't get a note? Follow up, she says. Set a tone of accountability for employees.
  • Be consistent. One problem Herzberg often sees is that with good employees, the supervisors don't bother asking for doctors' notes, but with employees the supervisors don't favor, they do ask for a note. If that unfavored employee is a member of a protected class, you've got discrimination problems.
  • Make a decision about sick time. Many employers include sick time in their PTO programs, but some employers think sick time should be just sick time, and so they decide to factor that out of the PTO program. Typically sick time is not paid out if it is not used, whereas PTO time generally is.
  • Require employees to call in--themselves, if possible--on each day of absence. Of course, sometimes this is not possible, and if an employee calls and says, I will be gone for x days, you can accept that.

Employees often try to get away with calling at 5 a.m. and leaving a message before anyone is in the office. Herzberg doesn't recommend a system that functions with no personal contact. At a minimum, she suggests requiring the caller to leave word of where he or she can be reached for a follow-up call.

What About Rollover?

Herzberg doesn't recommend rollover at all, as she views vacation time as something that employees should
use for their mental health, but she recognizes that many employers do allow it.

If you do, she says, and vacation time is not used, require prior written approval of rollover, and generally limit rollover to, for example, 5 days if the number of total days is 20. In addition, require that the rolled over time be used in the first 3 months of the new year, Herzberg recommends.

If you do not limit rollover, you've got an accounting nightmare, and people will end up taking 6 or 7 weeks of vacation, which is not good from a productivity standpoint, and is hard on fellow employees who have to take up the slack.

In special situations, you can always allow exceptions, she notes.

Consistency, ADA, and FMLA

Consistency is a benchmark of employment law and is an important part of managing PTO, Herzberg notes. You need to treat similarly situated people the same--even the best employees that you trust.

However, consistency falls apart a little with ADA and FMLA issues that are interconnected with PTO, Herring says. You will necessarily be treating people differently.

For example, when accommodating disabilities, there will be very
individualized responses. And a pregnant employee's leave will be very different from that of an employee with the requirement for intermittent leave.

Furthermore, there is a tension between ADA and FMLA, says Herring. With ADA, you almost don't want to know any details, whereas the FMLA encourages supervisors and HR to be nosy, since qualifying for FMLA depends on whether the employee's problem is a serious health condition.

Another challenge is the definition of family member, he notes. The FMLA, for example, does include parents, but does not include in-laws.

However, some states, New Jersey, for example, do cover in-laws. Further, many companies choose to expand the definitions. The important thing is to define your policy ahead of time. Then you can be consistent in enforcing it.

Managing Compensation

For nonexempt employees, if they are not working, even for parts of a day, pay can be docked, or you can require use of PTO time, Herring says.

For exempt employees, it is a little more complicated. Normally under the Fair Labor Standards Act (FLSA), you can't dock for less than a full day.

However, the FMLA has a specific allowance for docking exempt employees for less than a full day. If the situation doesn't qualify for FMLA, exempts can only be docked for a full day or more for personal reasons, or you can require substitution of paid leave if you have a bonafide policy.

An exempt who takes an hour here, or an hour there, usually can't be docked, says Herring. However, DOL has issued an opinion letter that PTO time can be used in blocks of time of less than a full day as long as the employee gets full salary.

Ironically, once they run out of PTO, and miss part of a day, you have to pay full salary.

Dealing with Doctors

Some physicians just send a simple note on a prescription form: "Susie will be out until next week."

Unfortunately, Herring notes, in his experience, doctors often sign almost anything that gives employees time off. Yes, doctors tend to do what their patients want them to do, says Herzberg.

How can employers push back to get more info, she asks. When you get no detail, go back to the well, she says. If employees' leave or job is on the line, you'll usually get the note.

For example, says Herring, in FMLA cases, you have to explain to the employee that unless the employer gets the certification that the employee's problem is a serious health condition, their absence won't be covered and their leave won't be protected. Explain in a respectful, but direct way, he says.

Carryover from Traditional to PTO

The number one question in making the switchover from a tradition plan to a PTO plan is how to deal with employees who have built up lots of leave under the old system.

Dealing with large amounts of accrued leave at the changeover is a very tough issue. Companies make different decisions, says Herzberg. Some agree to pay it out over time, some pay out at retirement.

Basically, you want to control the carryover of large amounts of leave time (for example, 200 sick days) so that someone can't take a year off as soon as the PTO program goes into effect.

Don't take away something that has been "vested," says Herring. Find a way to bank, or grandfather. For example, say, if you have worked here longer than x years, you are allowed an extra amount of rollover.

Even when the switch to PTO is neutral as to loss or gain--and more often than not, employees gain, he says--invariably some employees will feel that you are taking something from them. Deal with that up front in the training and preparation for the changeover.

Most important, says Herzberg, whatever system you use for transferring banked time, make sure that everyone understands the plan. Roll out the policy with demonstrative training programs. Give a lot of lead time and make sure that everyone knows how the policy works, how the transfer is going to be made, what special provisions will govern the changeover period, and so on.

Employees Will Use Their Days

If you are going to give days, better be ready to have people take them, advises Herzberg. Employers need to set up a program that they are comfortable with.

Herring notes that he hasn't seen employers penalized. In his experience most employers and employees like PTO.

Last Minute Leave

What can you do about a person who misses work often without notice? Regular predictable attendance is a reasonable expectation, says Herring. If someone is abusing PTO time with a pattern of unplanned absences, you deal with it through counseling and discipline. Part of your training has to get across the idea that PTO isn't purely flexible; you can't just take time whenever you want to. Leave needs to be planned so the company can deal with productivity issues and so the team doesn't get stretched without warning.

To some extent, employers can make plans to reduce the problems associated with last minute leave.

For example, if you are surprised by a rash of calls the first morning of hunting season, work with employees to figure out how to get notice earlier so you can keep staffing reasonable during those times.

As another example, if last minute absences are due to children's illnesses, see if there is a way to help out with an emergency child care program.

Remind everyone that last minute absences hurt the team.

By the way, says Herzberg, to be a cynic, it doesn't matter what system you use, PTO or traditional; those who are going to abuse will abuse no matter what the system is.

When Employees Exhaust Their Leave

What can employers do about employees who have used up all their PTO time and still need to be out? How do you balance helping the employee and being consistent?

Herzberg says that some of the options are unpaid leave, some sort of medical leave, or, she notes, you can terminate employees and then tell them they can reapply when they are ready to come back to work.

Herzberg cautions against just letting everyone take unpaid leave as often as they want to. Employees shouldn't feel that they can just be off work whenever they don't want to come in, she says. There are repercussions with productivity, there are repercussions with the teams the people work on, and you're still paying benefits for these people. Take extra leave requests on a case-by-case basis.

To point out a related problem, Herzberg points to a case she worked on where an employee who had been ill for some time had taken a substantial amount of unpaid leave.

The employee was accepted for an experimental and expensive new treatment for her illness.

Unfortunately, she had taken so much unpaid leave that the health insurance carrier turned her down for the treatment, saying that it would no longer recognize her as an employee.

The insurance company had a definition of active employee tied to working 30 hours per week; it would not cover an employee who hadn't worked 30 hours for a long time.

Although you never know how these types of situations will play out, you do know that it's going to be a hassle.

In view of this, termination may not be so bad in some ways, because termination triggers COBRA, so the health insurance stays in place.

Unfortunately, says Herring, when an employee wants to work but can't, he or she will be the last person to admit it. You need to help them sort through the situation, get their long-term disability in place, and so on.

When making a decision to terminate in one of these endless leave situations, you may want to consider softening the blow by offering to pay a few months of COBRA, for example, says Herzberg.

Finally, when you are dealing with exceptions, make sure to step back to get a broader look at the overall picture. You want to be sure that you are not discriminating.

Collecting a Negative Balance

If an employee has been given advance PTO and then employment is terminated with that negative balance, should the company try to collect?

Herring would be cautious about trying to deduct for this with exempt employees. Such docking is fraught with problems.

And even though you might be able to do it for a nonexempt employee,
as a practical matter, he doesn't recommend it. Especially if the termination was involuntary, or because the employee saw handwriting on the wall, you've achieved your purpose by getting rid of person, he says. When you do petty things, that's likely to provoke a suit. Why do that?

Be big in small things, Herzberg agrees. Eat the PTO time and happily wave goodbye.

Double Counting

When an employee goes out on FMLA leave, be sure that your policy requires double counting, that is, require employees to exhaust vacation and or other paid time off along with their FMLA entitlement. You don't want them coming back from FMLA leave and then taking additional time off, says Herzberg.

Sometimes employees say they don't want to use FMLA, or don't want to use banked time, but it is not their choice, says Herring.

Rate for Payoff of PTO

Sometimes there's a question about whether you pay off at the rate at which the time was accrued or at the rate in effect at the time of the payoff, notes Herzberg.

First of all, she says, encourage employees to use their banked time, not to wait for it to be paid out.

And, to encourage the use of the time, only allow rollover of a limited portion of time.

As to the specific question about the rate, since it's usually just a small amount, most organizations just pay it out at the current rate, she says.

Herring adds that it is simply a nightmare to figure out what was accrued at what rate.


Careful planning for a changeover to PTO, clear communication about how the system works, and careful administration will yield a PTO system that pleases employees and employers alike.

Youc an order a CD copy of the PTO audio conference here.

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