PTO Banks

[Guest Debbie F.]

I need help. We are a company of approximately 120 full-time employees. We currently accrue sick, personal, holiday and vacation time separately. We are looking to create a PTO bank and are thinking of including all the accruals in one bank. My only concern is if an employee leaves do we have to pay out all the time in the bank or can we pay out only a percentage based on the percentage of vacation time that is part of the PTO bank. Also, what time frame is appropriate in order for the employee to use the time accrued, and if it is not used can they loose the time, place it in a separate short term disability bank or pay out for the time not used? Help!!

[pjkoehler]

Your question relates to whether state labor law, i.e. the state in which the employee's services are performed, imposes PTO accrual requirements, i.e. an obligation to pay the accrued by unused portion on termination of employment or carry all or some portion of it over to the next year. Many states impose no such requirements. In a state such as California, the law is narrowly tailored to impose accrual requirements on "vacation pay," which is defined to exclude sick pay. To the extent, your program retains records that distinguishes between "vacation pay" and nonvacation pay sources of PTO, it seems like a stretch to apply the law to the nonvacation component. It goes without saying that you should confer with local labor counsel on this issue.

If this doesn't eliminate your concern, you might consider recasting the vacation pay PTO as a self-insured ERISA welfare benefit plan (with all the attendant administrative burdens). Many employers in states with stringent vacation pay accrual requirements take the position that maintaining a VEBA as the funding vehicle for a vacation pay plan elevates it the status of a self-insured ERISA welfare benefit plan, rather than a mere payroll practice, thereby, subjecting the state law to ERISA preemption. Whether this is cost-beneficial depends on the cost of ERISA compliance plus establishing and operating the VEBA less the savings from avoiding the vacation pay accrual requirements under state law.