7. ‘Use it or lose it’ clauses, and accrual caps

This is a post in the continuing series about 10 things to know when creating a PTO policy.

To limit the total amount of paid time off your business has to pay out, you might like to consider putting in place a “use it or lose it” policy.

This means that staff have to use all of their accrued leave in any given year, or they forfeit all their remaining time off.

Another common policy is to instead allow some days to carry over into the next year, up to a certain amount (i.e. up to 2 weeks carry over per year).

Both policies can have the positive effect of encouraging staff to actually take their allocated time off in order to recover and come back refreshed.

Be aware that because some states like California and Massachusetts consider paid time off to be equivalent to wages earned by the employee, they do not recognize “use it or lose it” clauses.

California does allow employers to put in place maximums on how much time staff can accrue. For example, you might set the accrual cap to 1.5 times the annual accrual rate of say 18 days per year, giving a maximum PTO balance of 27 days.

If you do have staff in California as well as other states, and you would like to put an accrual cap in place, the simplest thing to do is to allow staff everywhere to carry over their PTO balances and to apply the accrual cap across the board.