PTO Rollover

What is PTO rollover?

PTO rollover, also known as PTO carryover, refers to the practice of transferring unused paid time off (PTO) from one calendar year to the next. This policy allows employees to carry over their unused leave days for future use rather than losing them at the end of the year. 

The exact terms of PTO rollover can vary significantly between companies. Some organizations may allow unlimited rollover, while others cap the amount of PTO that can be carried over.

Common types of PTO rollover

PTO rollover policies can vary widely among organizations. Still, several common types are often implemented to manage how employees can carry over unused vacation days from one year to the next:

Benefits of offering PTO rollover

Here are some of the key benefits of offering PTO rollover to employees:

• Attracts and retains talent: In a competitive job market, flexible PTO policies can make an organization stand out to potential hires and help retain current staff.
• Encourages work-life balance: By allowing employees to manage their time off according to their personal and professional needs, companies can foster a more balanced, healthy work environment.
• Offers flexibility: It offers flexibility to employees who might have years where they don’t use much PTO due to workload or personal reasons, allowing them to save it for when they can take a longer vacation.
• Reduces end-of-year absenteeism: A common issue with use-it-or-lose-it PTO policies is the surge in employee absences towards the year’s end. Rollover vacation days can mitigate this issue, helping maintain consistent staffing levels throughout the year.

Challenges of offering PTO rollover 

Offering PTO rollover also presents several challenges: 

• Financial implications: Accumulated PTO represents a financial obligation that the company must account for, which can impact the company’s financial planning and reporting.
• Operational disruptions: Employees wanting to take extended time off all at once can disrupt operations, especially if not planned and managed properly.
• Encouraging overwork: Some employees might feel incentivized to overwork and not take needed breaks, accumulating PTO with the intention of using it later, which could lead to burnout and decreased productivity in the long term.
• Balancing fairness: PTO rollover can lead to disparities among employees, where some can accumulate and use significant amounts of PTO, while others, due to work demands or culture, might not take as much time off.

PTO rollover laws by state

PTO rollover laws vary significantly by state in the U.S. Here are some examples: 

• Colorado: “Use-it-or-lose-it” policies for accrued paid leave are prohibited in Colorado, ensuring employees retain earned vacation and sick leave. Employers must comply with state laws protecting paid leave and adhere to the Healthy Families & Workplaces Act, which allows for up to 48 hours of unused sick leave to be carried over annually.
• Washington State: In Washington, “use-it-or-lose-it” policies are allowed for vacation time but prohibited for sick leave. Employers must follow their own PTO policies and provide at least 1 hour of paid sick leave for every 40 hours worked, allowing up to 40 hours of unused sick leave to carry over each year.
• Illinois PTO rollover: “Use-it-or-lose-it” policies for vacation in Illinois require giving employees a reasonable chance to use their time and notifying them of the policy. Similar discretion is suggested for sick leave. The Paid Leave for All Workers Act allows such policies if employers front-load paid leave. Otherwise, accrued leave must carry over.

HR best practices for setting a PTO rollover policy

Developing a PTO rollover policy requires careful consideration to balance the needs of your organization with the well-being of your employees. Here’s a step-by-step guide:

1. Clearly communicate the policy: Make sure the policy is explicitly outlined in your employee handbook and communicated through meetings or digital platforms. Transparency in policy details prevents confusion and ensures employees understand their benefits.
2. Set clear rollover limits: Define how much PTO employees can carry over at the end of the year. Clear limits help manage expectations and encourage employees to take necessary time off while providing a safety net for unused days.
3. Leverage technology: Utilize HR management software or HRIS that can track PTO accruals, usage, and rollover automatically. A system that offers transparency, where employees can easily check their PTO balances and understand their rollover options, simplifies administration and improves the employee experience.
4. Encourage employees to take time off: Develop a culture that actively encourages taking time off. This practice helps mitigate the accumulation of excessive unused PTO and promotes a healthier work-life balance among employees.

HR tip

When crafting a PTO rollover policy, it’s crucial to align it with the company’s broader strategic goals and cultural values. Consider conducting a survey to understand employee preferences and reviewing historical PTO usage patterns to inform your policy decisions.

PTO rollover policy example

Below is an example of what a PTO rollover policy might contain:

• Eligibility criteria: All full-time employees who have completed their probationary period are eligible for PTO rollover. Part-time employees may be eligible on a prorated basis, subject to management approval.
• Rollover period: The PTO year is defined as January 1st to December 31st. Unused PTO must be rolled over into the next PTO year.
• Accumulation: Employees accrue PTO on a monthly basis, beginning on their date of hire. The rate of accrual is determined by the employee’s tenure and position within the company.
• Rollover calculation:
  • Employees are allowed to roll over a maximum of 40 hours (5 days) of unused PTO into the next PTO year.
  • Any PTO hours in excess of this limit will be forfeited unless otherwise approved by management.
  • Rollover PTO will be added to the employee’s PTO balance on January 1st and must be used by December 31st of that year. Unused rolled-over PTO will not be eligible for further rollover or payout.
• End of employment: Upon termination or resignation, any unused PTO (including rolled-over PTO) will be paid out according to state law and company policy.