Paid leave 101: how to keep your plan compliant

Paid leave is a great benefit to offer your employees as a business owner. Still, if you’ve never set up a plan, it can be a little confusing to figure out where to start. 

There are several aspects to consider when crafting the best paid leave plan for your business and your staff. The most important factor when it comes to paid leave is whether or not you are subject to any laws regarding your employees and the package you offer. 

We have the answers the most common legal questions around paid leave such as: Do you have to offer it from a legal perspective? What type of PTO legislation do you need to consider when creating your policy? 

If you’re curious about which states and cities implemented paid leave laws in 2021, check out our blog, Paid Leave Laws 2021: What’s New

What is paid leave? 

Paid leave, also known as paid time off (or PTO) is personal time for employees to get out of the office, stop working, and put their attention on their personal lives.

Some businesses choose to implement separate policies for vacation time and sick days, but when it comes to PTO hours, there’s not usually a differentiation between vacation days, sick leave, or personal days. Any reason your employee takes a day (or number of days) off that you pay them for falls into the amalgamation of paid leave. 

Do I have to offer PTO? 

Most businesses are currently not permanently required to provide paid leave to your employees under federal law. The U.S. Family and Medical Leave Act simply entitles employees to take unpaid leave with job protections and continued healthcare coverage for reasons such as to deal with a health condition, to care for a new child, to care for a family member, and more.

The federal Paid Sick Leave Executive Order does require certain types of federally contracted companies to provide up to seven days of paid sick leave to their employees. Learn more about these requirements by visiting the Department of Labor’s page on sick leave

However, until Dec. 31, 2020, employers with fewer than 500 employees must provide emergency paid sick leave and emergency paid family leave for staff members impacted by COVID-19. Check out our blog about the Families First Coronavirus Response Act to learn more. 

While the FMLA does not require employers to pay for time off, it does give employees the right to choose if they would like to use their available PTO for part or all of the duration of their leave. And employers can also require their employee to use the accrued time for a portion of the leave.

Some businesses will implement a paid FMLA policy or create separate plans for specific leave types. When creating a PTO plan, make sure you include FMLA time.

While no permanent federal law is in place, there may be laws regarding paid time off in your state. Nine states, as well as Washington D.C., currently have legislation around paid leave. Here is a list of the states with paid leave laws as of 2020, with links to guides on each one: 

What other paid leave laws should I know about?

In most states, if you do decide to implement a paid leave policy, you must comply with your established terms. Not doing so could lead to fines or even a lawsuit brought against you by your employee. 

You also may have to pay out the rest of an employee’s accrued time off when their employment ends. However, it depends on where you live. Twenty-four states require employers to pay out the rest of a terminated employee’s PTO when they leave the business. These states include: 

Alaska, Arizona, California, Colorado, Illinois, Indiana, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Minnesota, Nebraska, New Hampshire, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, Rhode Island (after one year of employment), Tennessee, West Virginia, and Wyoming, and the District of Columbia. 

Another important note: PTO policies can look different for different types of employees based on their role status, such as offering more time off for employees who have tenure or implementing different policies for hourly vs. salaried employees. 

However, it is illegal to discriminate between protected classes, including: 

Race, color, religion, sex (pregnancy, gender identity, and sexual orientation), national origin, age (40 and over), disability, genetic information, veteran status, or any other characteristic protected by federal, state and local laws. 

Canadian paid leave laws 

Do you operate a business in Canada or have employees in Canada? You’ll need to follow their federal paid leave laws. In most Canadian provinces, employees are entitled to a minimum of two weeks of vacation for every completed “year of employment,” according to the Government of Canada’s website

After an employee works for the same employer for a five consecutive years, they must receive three weeks of vacation. If an employee stays with the same employer for 10 years, they receive four weeks of vacation. 

The government lays out vacation pay calculation like this:

  • If an employee receives two weeks of vacation, the employer must pay 4% of earnings in the entitlement year.
  • When an employee receives three weeks of vacation pay, the employer must pay 6% of earnings.
  • Where the employee is entitled to four weeks, vacation pay is 8% of earnings.

Upon the employee’s termination, the employer must pay out the employee’s remaining vacation balance. 

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