Published in NH Business Review (8/16/2017) and posted on www.mclane.com.

Neither federal nor New Hampshire law requires that employers provide paid time off to employees. The reality is that paid time off is an assumed benefit of employment resulting from social and economic pressures. More recently, employers are recognizing that employees’ work performance is better and employees have more job satisfaction when they have time off and so employers must decide the parameters of the benefit.

It is entirely up to the employer to decide how it will structure paid time off, including whether it will be vacation time, sick time or paid time off (PTO), whether the time is accrued or given in a lump sum on the employment anniversary date (or calendar year), whether the time must be used in the benefit year or can carry over to the next benefit year, and whether any accrued unused time will be paid out when employment ends.

Employers sometimes confuse “vacation time” with “PTO.” Simply put, PTO is paid time off for any reason at all: vacation, sick or a personal day. Many employers prefer the PTO structure because it is less complicated to administer and track.

An alternative to PTO is separate vacation and sick time policies. When there is a separate sick policy, employees can only use sick time for defined reasons which could include time off to look after a sick child, spouse or other close family member or limited to the employee’s illness only.

While New Hampshire law does not require that paid or unpaid sick time be offered, if an employer has employees located in Massachusetts, it might be required to do so under the Massachusetts Sick Time Law.

Employers with employees located in different states must carefully consider whether separate leave policies or a PTO policy will meet state sick time law requirements.

Accrual of paid time off

The amount of vacation time given by employers has not changed much over time. Depending on the position, it ranges from one to three weeks for full-time employees. Employers should be careful to have a consistent, equally applied formula to determine the amount of paid time off given to employees to avoid accusations of discriminatory treatment.

PTO policies tend to include additional days to account for sick days. Some companies are experimenting with “unlimited” vacation time for its executive employees, adopting the rationale that executive employees have to meet performance expectations regardless of how much time they take off. Before adopting an “unlimited” vacation policy, the employer must consider the impact on other leave policies, such as the Family and Medical Leave Act and leave as a reasonable accommodation under the Americans with Disabilities Act.

Once deciding on the amount of paid time off, employers must consider the accrual method. The most common accrual methods are to give the employees the entire amount of paid time off in a lump sum or to require that employees accrue leave time and, therefore, can only use what they have accrued.

As state sick leave laws are enacted, employers with employees working in states that have such laws much ensure that the accrual method that is selected for sick time meets the legal requirements for accrual under those laws.

Greater flexibility

The accrual method that gives most flexibility to employees is the lump sum. Employers give the entire amount of the vacation, sick or PTO time at time of hire and then at the beginning of each calendar year. This method gives employees the ability to use the benefit immediately, resulting in greater flexibility to manage time off issues as they occur.

Employers who give employees a lump sum often prorate the amount of the sum depending on when the employee is hired and sometimes prohibit use for a period of time. It is imperative that employers be specific in the written policy about whether unused time can roll over (or is lost) and whether unused time will be paid out upon termination. Employers are reminded that employees in Massachusetts must be paid out accrued unused vacation time upon termination of employment.

The second accrual method is to require employees to accrue a certain amount of paid time off based on the number of hours they work. The advantage is that employees can use only what they have accrued so that employers can keep a tight rein on absences.

However, it often happens that an employee will need time off, but has not accrued enough time. In those situations, employers sometimes allow the employee to “borrow” time. However, if the employee leaves employment with a “negative” paid time off balance, employers should proceed with caution before making any unauthorized deductions from the employee’s pay.

While paid time off is not required under state and federal laws, the reality is that it is offered by most employers, and its terms and conditions are completely within their control. Employers should decide and define clearly in writing all aspects of the paid time off policy: type; amount; accrual method; roll over; and payout of unused paid time off upon termination of employment that should be given to and acknowledged by each employee upon hire.

By having a clearly defined policy, employers are more likely to be able to manage time off issues.

Beth Deragon, an attorney in the Employment Law Practice and Litigation Group at the law firm of McLane Middleton can be reached at 603-628-1490 or [email protected].

— by Beth A. Deragon