Whether paid time off (PTO) continues to accumulate while an employee is on vacation is a common point of confusion. PTO accrual is the process of incrementally earning time away from work. Whether this process continues during a vacation period depends on two distinct factors: the specific written policy established by the employer and relevant state and local labor laws. These laws can override or supplement the employer’s internal rules.
The Foundation of Vacation Accrual
Vacation time, or PTO, is generally earned through one of two primary methods. Accrual based on hours worked is frequently used for hourly employees. Under this model, an employee might earn one hour of PTO for every 40 hours they spend on the clock. This system ensures the time off earned is directly proportional to the hours put in.
The second common method is accrual based on a set schedule, often applied to full-time, salaried employees who work a consistent schedule. This system may see an employee earn a fixed amount of time, such as four hours of PTO, at the end of every bi-weekly pay period. PTO is earned gradually over time, rather than being granted as a lump sum at the start of the year. The company’s system dictates what activity generates new PTO hours.
The Difference Between Paid and Unpaid Leave
The distinction between paid and unpaid leave provides the most immediate answer to the question of continued accrual while on vacation. When an employee uses paid vacation time, they receive regular wages and maintain an active, paid employment status. Since the employee is compensated, the time spent on vacation usually counts toward the metric used to calculate new PTO, allowing accrual to continue uninterrupted.
This contrasts with unpaid leave, where the employee is not receiving a wage. If the accrual system is based on actual hours worked, unpaid leave means the employee is not meeting the minimum work activity required to earn new hours. Consequently, accrual is almost always halted during unpaid leave, such as a personal leave of absence. Labor laws often require that employees on paid, protected leave, such as the Family and Medical Leave Act (FMLA), must be treated no less favorably than those on any other type of paid leave.
How Company Policy Determines Accrual During Leave
Since paid time off is not a federally mandated benefit, the specific language in a company’s policy determines whether accrual continues during paid vacation. The employee handbook or employment contract explicitly defines what counts as “hours worked” for generating new PTO. A policy may specifically state that paid vacation hours are included in the accrual calculation, treating them like regular working hours.
Conversely, a policy may calculate accrual only on hours physically clocked, explicitly excluding hours paid out as PTO usage. This means the employee’s balance does not increase while they are away, even though they are paid for the time off. Therefore, employees must check their company’s specific written policy, as the employer’s established internal rules govern accrual, provided they comply with all applicable laws.
State and Local Laws Governing Paid Time Off
While federal law does not mandate paid vacation, many state and local jurisdictions impose legal constraints on how companies manage the time they offer. Several states, including California and Massachusetts, treat accrued vacation time as earned wages. This classification means that once the time is earned, it is compensation that cannot be forfeited by the employee.
This legal treatment impacts the employer’s ability to restrict the use of accrued time, especially upon separation. In these jurisdictions, if an employee separates, the employer must pay out the monetary equivalent of all accrued, unused vacation time in the final paycheck. Furthermore, some mandatory sick leave laws require a certain amount of unused sick time to carry over from year to year. These local regulations can influence the overall structure of a company’s general PTO policy.
Understanding Accrual Caps and Rollover Limits
Even if an employee’s policy allows PTO to continue accruing while on a paid vacation, the total time they can bank is constrained by a maximum accrual cap. This cap halts the earning of new PTO hours once the balance reaches a preset limit, such as 1.5 or 2 times the annual allotment. Once the cap is reached, an employee must use some banked time before they can begin accruing hours again.
Rollover limits determine what happens to unused PTO at the end of a policy period. Some companies use “use-it-or-lose-it” policies that require the forfeiture of unused time, though this is illegal in states that treat PTO as earned wages. Other policies allow for either a limited carryover of a specific number of hours or an unlimited carryover.