PTO rollover: what employers and employees need to know

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What is PTO rollover?  

PTO rollover (AKA carryover) is a company policy that allows employees to transfer unused paid time off from one year into the next—whether it's vacation time, sick leave, or any other type of remunerated time off. 

PTO rollover works by allowing employees to carry over a certain amount of unused paid time off into the next year, based on company policy. This helps employees avoid losing unused vacation or other paid leave at year's end.  

There may be limits on how much PTO can be rolled over or deadlines by which it must be used. A lot depends on company policies, as well as jurisdictional regulations. 

PTO rollover policies  

Businesses generally use two main types of PTO rollover policies: a "limited rollover," which caps the amount of unused PTO that can be carried over to the next year, and an "unlimited rollover," which allows employees to roll over all unused time. Some companies also implement a "use-it-or-lose-it" policy where no PTO is carried over, requiring employees to use their time off within the year. 

Limited rollover policies

Limited rollover policies are ideal for businesses that want to balance employee flexibility with workforce planning. For instance, a company with seasonal demand might allow employees to roll over up to 40 hours of PTO, enabling personal time during slower months. At the same time, they can cap the rollover to ensure employees take regular breaks and prevent staffing shortages. 

Unlimited rollover policies

Unlimited rollover policies can work well for organizations with long-term, complex projects where employees might prefer to bank time off for extended vacations or sabbaticals. A senior software engineer, for example, might accumulate PTO over several years to take a long trip after completing a major product launch. 

Use-it-or-lose-it policies

Use-it-or-lose-it policies are common in fast-paced industries like retail or hospitality, where businesses rely on consistent staffing levels. This policy type ensures employees take time off regularly, preventing burnout and helping the business maintain predictable staffing without large PTO balances carrying over into the next year. 

The legal landscape of PTO rollover in the United States  

United States federal regulations

The Fair Labor Standards Act (FLSA) does not require employers to provide PTO or mandate any rollover policies. These decisions are left to the company's discretion. However, some state laws may have specific rules about PTO rollover, requiring companies to allow it or pay out unused time upon termination. It's crucial for businesses to clearly communicate their PTO policies, including rollover details, to ensure compliance with applicable state laws and avoid disputes. 

United States state regulations

State regulations on PTO rollover vary widely.  

In California, employers must allow vacation time to carry over since it is considered earned wages. That said, they can cap the total accrual amount, often at 1.5 to 2 times the annual PTO accrual rate. This prevents excessive accumulation while ensuring employees can still earn time off. 

In Colorado, "use-it-or-lose-it" policies are likewise prohibited, and employers can set reasonable accrual caps as long as they are clearly communicated. Employees must be paid for any unused vacation time if they leave the company. 

Massachusetts allows "use-it-or-lose-it" policies if clearly communicated, but employers can also offer rollover at their discretion. Any accrued, unused vacation must be paid out when an employee leaves. 

In New York, there are no specific laws governing the rollover of paid time off (PTO). However, employers must adhere to their written policies and pay out unused PTO if they have made such a promise. In New York City, the rules are different: employers must allow up to 40 hours of unused safe and sick leave to carry over from year to year unless they provide all leave at the beginning of the year. 

The legal landscape of PTO rollover in Canada  

Canada's federal regulations

Canada's federal labor regulations do not specifically mandate PTO rollover, but they do set minimum standards for vacation accrual. Under the Canada Labour Code, federally regulated employees are entitled to at least two weeks of paid vacation after one year of employment, increasing to three weeks after five years and four weeks after ten years. Employers are required to ensure that employees take their earned vacation within 10 months of the end of the year in which it was earned. If the employee is unable to take their vacation, it can be carried over with employer approval or else paid out at the end of the year. 

Canada's provincial regulations

Canada's provincial regulations regarding PTO rollover vary, with each province setting its own standards for PTO accrual, carryover, and payout. 

In Ontario, employers are not obligated to allow PTO rollover, which means they can set policies where unused vacation must be used within 10 months of accrual. If the vacation is not taken within this period, employers are required to provide a payout for the unused time. 

In British Columbia, there is no legal requirement for PTO rollover, but employers must ensure that vacation time is provided within 12 months of it being earned. If the employee does not take their vacation within this period, the employer must compensate them with a payout for any unused vacation. 

In Quebec, vacation must be taken within 12 months of when it is earned. If the vacation is not used within this time frame, employers are required to either allow leave rollover or provide a payout if the employee is unable to take their vacation. 

The pros and cons of PTO rollover  

For employers: 

Pros: 

• Encourages employee retention by offering flexible time-off policies. 
• Reduces last-minute absenteeism, as employees can plan time off more effectively. 
• Promotes a positive work culture by valuing employee wellbeing. 

Cons: 

• This can lead to financial liability if accrued PTO is not managed and paid out when an employee leaves. 
• This may result in workforce shortages if many employees choose to take large amounts of time off at once. 
• Increases administrative complexity in tracking and managing PTO balances year-over-year. 

For employees: 

Pros: 

• Provides the flexibility to save time off for longer vacations or emergencies. 
• Reduces stress by allowing unused PTO to roll over instead of being forfeited. 
• Improves work-life balance with more control over when time off is taken. 

Cons: 

• Some employees may not take sufficient time off, leading to burnout. 
• Accumulated PTO could be lost if employers place strict caps on rollover limits. 
• Unused PTO may be subject to payout limits, reducing its value upon leaving the company. 

Common misconceptions about PTO rollover  

The following are major (yet very common) misconceptions about PTO rollover: 

• All PTO automatically rolls over: PTO rollover depends on an employer's policy and is not guaranteed unless explicitly stated, with some companies having "use-it-or-lose-it" policies. 
• PTO rollover is the same everywhere: PTO rollover policies vary widely by country, state, and even individual companies, with different rules on accrual, caps, and payouts. 
• Rollover is the ideal option: while rollover offers flexibility, it can lead to challenges like burnout from not taking enough time off or financial liability for employers if too much PTO accrues. 

The future of PTO rollover  

The future of paid time-off rollover is likely to be shaped by an ever-increasing employee demand for flexible, wellness-based time-off policies. Legislative changes that prioritize work-life balance will likewise have an impact on the direction of leave and vacation rollover.  

Trends such as remote work and employee wellbeing initiatives could lead more businesses to adopt rollover-friendly policies. Concurrently, both US states and Canadian provinces may introduce stricter regulations on accrual limits, payouts, and mandatory rollover to standardize practices and help prevent burnout. When you consider that your people are your greatest asset by far, this is all good news.