Catherine Strauss is a partner at law firm Ice Miller. She can be reached at [email protected].
By all accounts, employers are facing unprecedented complications in curating paid time off and sick time policies.
Over the last decade, state and local legislatures enacted a plethora of new laws on PTO and sick time while the number of multistate employers has grown to the highest in recent memory.
Increased geographic mobility of workers and state regulation of PTO and sick time exacerbate the amount of change human resource professionals have to manage. Across industries, it is commonplace to have at least one, or perhaps many, workers in states other than the principal place or places of business.
Against this backdrop, employers need to thoughtfully plan PTO and sick time policies that are legally compliant, nondisruptive to employee culture, and most advantageous from a cost and time perspective for employers.
A hypothetical
Before we dive into best practices, an illustration will help set the stage: ABC Company’s home office is in Columbus, Ohio. During COVID-19, one employee moved to Illinois and another to California.
Both employees continue to work for ABC Company remotely from their homes. Although Ohio does not have any state requirement relating to PTO or sick time, Illinois and California do — and complex ones, depending on the cities in which the employees live. Numerous questions arise: Should the company have a universal PTO and sick policy? Should it create three policies for its current employees? Does the company have plans to hire other employees in other states? Does the HR team have capacity to manage three different policies and the potential differences between accrual and frontloading? The list goes on and on.
In this instance, six of one is not a half dozen of another. If a company selects the strictest or most generous state requirements to reduce compliance risk, it could be significantly more costly. If a company elects to have multiple policies, it could significantly increase compliance risk, overload management and cause confusion or jealousy among the workforce.
Best practices
Employers can make informed choices with planning that takes into account any applicable laws, an employer’s policies and potential effects on employee engagement.
Applicable laws
Start by taking an inventory of the states and cities where employees live. Next, with the help of employment counsel, chart out the applicable legal requirements. Analyze whether financial or other penalties exist for noncompliance. Make an informed, reasonable decision.
Creating a chart is a straightforward way to tackle the varying legal requirements. An initial determination might be whether a specific employee is subject to city, county and/or state requirements and which of the three are the most employee-friendly. Apply the most generous policy, which will usually be the city requirement.
Items to review and add to the chart include any legislatively mandated amount of time, options to frontload or accrue, whether carryover at year end is permitted, whether caps on overall banking are permitted and whether accrued unused time is required to be paid at separation.
Workplace policy
Often, employers benefit from frontloading PTO or sick time, such as being permitted to restrict carryover. In other words, often employers can limit annual carryover if they use the frontloading method. As part of this analysis, employers must also determine what type of year they use or are permitted to use — calendar year or employment anniversary start date. Accrual creates its own complexity: it requires administrative diligence and is often not clear or easy to understand when employees review their paystubs or other recordkeeping documents.
A downside of frontloading is requiring employees to ask for unpaid leave later in the year if they use their allotted time early in the year. Generally, this can be anticipated by related handbook policies, but it does add to the labyrinth in mapping out the overall strategy.
Carryover at year end and overall annual caps also bear another consideration — what is the industry, and are there certain times of the year during which the employer restricts PTO use? Examples include retailers in the fourth quarter or tax professionals in March and April. In addition to legal compliance, each employer needs to consider its specialized business needs. Employers can also permit carryover where none is required but for limited amounts of time, such as through the first quarter of the next calendar year.
This could be a good employee benefit for retailers and other employers for whom permitting significant PTO use at calendar year-end is a burden. In short, compliance is important, but each employer’s needs are just as important.
Next, an employer should consider the number of employees in each locale as a percentage of its overall workforce, as well as the capacity and structure of the management team who will oversee the use of such paid time off. For example, 80% of an employer’s workforce may be in states without state-required sick leave, but the remaining 20% might reside and work from a state mandating paid sick leave. A thorough review requires computation of the actual costs involved and applicable penalties for failed compliance.
Employee engagement
Harmonizing conflicting PTO and sick leave laws certainly has a financial component, but numerous human considerations also come into play.
Employee morale should be top of mind for each employer when conducting this analysis. If the majority of the workforce enjoys the most generous state-required paid time off, consider the implications for employees in other states who are not entitled to the same benefits. Does a significant disparity cause unnecessary internal strife? Are there good reasons to employ different policies for different groups of employees? Does the company have the bandwidth to effectively manage multiple policies?
Another important consideration is fairness. Legally, policies cannot discriminate or have the impact of discriminating based on protected characteristics. Although employee geography is objective and neutral, employers should strive to uniformly apply policies to applicable employees.
Understand the applicable law and requirements but know that employers always have choices about whether to harmonize state and local requirements for all workers or some portion of workers. With more workers in jurisdictions beyond the “home office,” stay on top of employees’ locations and laws governing those states, and consult with experienced legal counsel to assist in complying with these changing laws.
