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I wonder if maybe you address specifically what happens to unused PTO hours when you come over to unlimited PTO, and generally what employers are allowed to do with your already banked PTO hours and your rights under an “unlimited” PTO workplace?
My company (located in Utah) is making the change to unlimited PTO on January 1st. Until now we’ve had a pretty generous time off policy, around 15 days of PTO every year with a max rollover of 200 hours. Because of the requirements of my job, it’s rare for me to even come close to taking all of my time off, so I’ve pretty regularly rolled over 200. And it was nice to think that if I quit or was laid off I’d be able to collect on that 200+ hours.
With the change to unlimited PTO, however, the company is saying that whatever we’ve accrued is now use it or lose it. There’s no way I can take 40 days off of work, even if I spread it out between then and now. I’d prefer to cash it out, but I’m told that’s not an option. I can’t find anything in my offer for employment about specifics for this, the only thing says that I’m “entitled to paid vacation in accordance with the Company’s vacation policy, as in effect from time to time.” Do I have any recourse, or am I out over $20,000?
Thanks,
Admiral JazzyPants (I’m assuming you’ll do better on a hip fake name than I can)*
At what point in our culture did we stop calling it a paid vacation day and start calling it PTO?
It’s bad enough that—as the 14th happiest nation in the world—we consider 15 days of paid vacation a generous policy. Why do we have to strip those days of their vacation connotation—the hope of a singles cruise on Norwegian, your go at New Zealand’s Routeburn Trek, or the enviable life dream of squandering $10,000 to not see Blink 182 play during a Bahamian shitstorm—and swap it out with the unsexiest bare minimum of meaning, “paid time off?” Wait, better squeeze the dream completely dry with a soulless workplace abbreviation: “PTO.”
Anyway, Admiral JazzyPants, there are layers to this, and not just in Utah but all around this happy nation we call home. Obviously, I won’t be able to speak to every state, but the headings below can act as a checklist of what people should consider when thinking about how vacation pay works in their own states. Note, also, that the discussion below doesn’t necessarily apply to workplaces subject to union or similar agreements.
Before we dive in, the first thing anyone wanting to know about this topic should do is go find your company’s paid vacation policy. Read it, and know what it says. OK, now proceed.
Are employers required to give you paid vacation days?
Not here in the 14th happiest nation in the world, they aren’t. This isn’t socialist Denmark, Comrade Hamlet. No, vacation days are a privately given benefit.
Can employers limit the amount of vacation days you accrue and carry over to the next year?
Absolutely. Remember, this is a privately given perk as part of an overall benefits package employers provide in order to be competitive for talent in the market.
Vacation days are theoretically there to give you time during the calendar year to blow off work, force yourself into a new headspace for a reasonable five days flanked by two weekends (bonus if one is a holiday weekend!), and come back refreshed and ready to burn out in record time. Your company wants you—again, theoretically—to take advantage of this. But they don’t want to give you too much time.
The max vacation you get in a year comes illustrated in your employee handbook with a bleak chart that shows you the achingly miniscule amount of fractional PTO hours you earn per pay period, based on seniority, in case your soul needed more crushing during the first-day HR orientation video.
Many vacation policies allow you to roll over your maximum annual accrual to the next year, just in case you weren’t able to use all your vacation because you were covering for the accounting team’s incompetence for the 8th year in a row. This can be done in various ways, but let’s assume a maximum Admiral JazzyPants rollover of 200 hours. Not bad.
A lot of employers have one-upped accrual caps by implementing a use-it-or-lose-it policy of one form or another, which means that your accrued vacation hours expire after a certain period of time. Some states—including California, Montana, Nebraska, and kind-of sort-of Colorado—ban or discourage use-it-or-lose-it policies on the basis that “earned” vacation days are, in fact, earned income in which you have a vested interest. Most other states defer to the vacation policy being a private agreement between employer and employee.
Does my employer have to pay me unused vacation hours when I leave?
If you live in a state like California, Idaho, Illinois, or Maryland, yes. Vacation hours earned in those states are required to be paid out when you leave because they’re essentially considered earned but deferred wages. And the consequences can be harsh for an employer who tries to stiff you—Idaho courts have applied a 3x multiplier as damages for trying get around the law. As a Silicon Valley CFO recently told me: “Two signs someone is looking for a new job: (1) They update their LinkedIn profile, and (2) they ask about payment of earned but unused vacation.”
Other states, including Utah, require the employer to pay out vacation on termination only if that is what is in the company’s vacation policy or by a prior agreement with the employee. Other states are completely silent on the topic, because those states hate confrontation.
I will tell you one thing: Companies hate accruing vacation time on the books. If only there was some way to not accrue vacation time ...
How is unlimited vacation treated?
“Time is an illusion,” wrote Douglas Adams. “Lunchtime doubly so.” Quadruple that for unlimited vacation time.
While a mere sliver of companies that offer vacation do so on an unlimited basis, it’s a near standard-issue benefit in the land of technology companies, designed to lure in twenty somethings who also go all-in for generous-sounding perks like free lunches (so nobody ever leaves the building for food), foosball tables and other recreational bullshit (to evoke the mirage of a playful workplace), and team-building exercises (to provide the fantasy of a social life).
Unlimited vacation time is an absolute boon to employers, though: People often use it less than actual earned PTO, there are zero dollars to accrue on the company’s books, and when an employee gets terminated, there’s nothing to pay out. In a state like California—which is famously protective of workers—employers need to be careful in how they administer unlimited vacation policies so they don’t appear to be circumventing the state’s laws on earned wages from vacation days. In my experience, though, peer pressure does a good enough unintended job on keeping utilization to a minimum.
How does this apply to Admiral Jazzypants?
The twist here is that you have 200 hours saved up, and they’ve gone and changed the policy to unlimited, which has a retroactive impact on your sweet 200 hour vacation bank. And—even though you haven’t seen your company’s vacation policy—cash-out appears not to be an option.
How is this going to fly in Utah? “Vacation pay in Utah is not required by statute. It’s based on the contract between the employer and the employee, or, in most cases, the employer’s policy,” Kass Harstad, member at Strindberg & Scholnick, LLC, a Utah labor and employment law firm, told me.
In the Admiral JazzyPants’s situation, the employer is changing the “contract” on vacation policy. Harstad indicates that the crux of the question is whether continued employment is consideration—value provided—for that change. In Utah, continued employment is consideration. “A private employer could say we’re getting rid of your accrued vacation bank,” Harstad says, “and if you don’t like it you can quit.” So, even if your vacation policy in Utah promises says one thing when you accrue vacation days, the contractual basis of the policy means that it can be changed, and that you “agree” to it by continuing to exist at your company. And you say goodbye to your 200 hours if you’re in Utah.
Continued employment as consideration, by the way, is used a lot in all states—even California—to indicate employee consent to many things, not just this issue. You’ll know it when you see a legal agreement in front of you from your employer for one reason or another.
Each state is going to be different on this topic due to the variables. Some may find that earned vacation is a vested right that can’t be taken away, by contract or otherwise. If it’s a substantial amount of cash—in the case of Admiral JazzyPants, $20,000—it may be worth a consult with a local employment attorney.
If you’re a particularly well-paid and high-valued employee—and based on my reverse-engineering of the numbers, Admiral JazzyPants is well-paid—it might be good to have a one-on-one with a decision-maker at the company to negotiate a payout of these hours as a gesture of goodwill—good companies recognize good talent. If you’re well-paid but not valued, this may not be the best course of action as you may be viewed as an easily eliminated liability.
In any event, Admiral JazzyPants, sounds like you need some time off, maybe 200 hours or so.
*You assumed poorly.
Dan Ralls is a practicing lawyer with years of broad legal experience. He is part of the team at Unwonk Podcast and can be found on Twitter here and here. You can also find him on Medium sometimes. His opinions and conclusions are, of course, his own. Same goes for people he quotes. Keep in mind that this is general information, and not formal legal advice or legal representation; if you need any of that, get it from a lawyer in real life, not an internet column. A legal problem is serious and fact-specific, and you should treat it accordingly. But you have common sense and already knew that.