This article is about Justworks PEO. What product am I using?
Employers may pay out unused, accrued PTO upon an employee’s termination either as a matter of company policy or because it is mandated under state law where the employee works. To help manage the amount of PTO that employees can accrue over time, employers may choose to institute limits on an employee’s PTO balance, also referred to as caps. In Justworks, you can set up two commonly used types of caps: carryover limits and balance caps (also known as accrual caps).
Carryover limits
Carryover limits cap the amount of PTO that carries over from one year to the next. A carryover limit of zero means that an employee’s entire balance at the end of that PTO cycle will be forfeited. This is sometimes referred to as a ‘use-it-or-lose-it’ policy. A PTO policy with no carryover cap will allow all PTO accrued under that policy to rollover to the next year.
Some states mandate that employers allow vacation to rollover year-to-year, making ‘use-it-or-lose-it’ policies unlawful. In these states, an accrual or balance cap may serve as an alternate tool for managing PTO.
How to: Set a Carryover
Setting up a carryover on the Justworks platform is simple. When creating a PTO policy, you are able to do so in the “Policy add ons” section of the workflow.
Screenshot of carryover portion under Policy add ons in the Create new policy flow.
You can choose from four carryover options:
- Allow negative balance: Employees can carry a negative PTO balance into the next cycle.
- Unlimited carryover (default): All unused PTO carries over into the next cycle with no limit.
- Limited carryover: Unused PTO carries over up to a set number of days. Any amount above that limit is forfeited at the end of the cycle.
- No carryover: Unused PTO is forfeited at the end of the cycle. Note: Some states don’t allow this—check your local laws before selecting this option.
These options can be combined. For example, you can allow positive carryover up to 10 days while also allowing negative carryover.
Note: In the past, a carryover cap of 0 was often used as a workaround for a “use-it-or-lose-it” policy. However, this still allowed negative balances to carry over. Now, policies with a carryover cap of 0 will show negative carryover as enabled. If that’s not what you want, review your policy settings and update them as needed.
If you're selecting limited carryover for the PTO policy, check the box under "Carryover limit." After that, you can choose the amount of unused PTO that an employee can carry over when the policy restarts.
Screenshot of carryover portion under Policy add ons in the Create new policy flow.
If everything looks good, you can proceed with completing the rest of the PTO creation workflow.
Balance caps
Balance caps, also know as accrual caps, are another method of managing employee PTO balances. In Justworks, accrual caps halt the accrual of PTO when an employee’s total balance has reached the preset cap, set by the policy. Once the employee uses some PTO and falls below the cap, they immediately resume accruing PTO until they hit the cap once more.
These caps are popular in states such as California, Montana, and Nebraska where carryover caps or “use-it-or-lose-it” PTO policies are not allowed.
A balance cap is typically set at an amount greater than the amount that is allotted annually. In California, there is even a requirement that any balance caps imposed by employers be “reasonable”, which means in part that such caps must be significantly greater than the annual allotment, such as a cap of 18 days for a policy that allows employees to accrue 10 days per year.
How to: Set a Balance Cap
A balance cap can be set during the creation of a PTO policy, under the“Policy add ons” section of the workflow.
Screenshot of Balance cap portion under Policy add ons in the Create new policy flow.
Once you've checked the box, you can set the cap of the number of PTO days an employee can accrue.
Screenshot of Balance cap portion under Policy add ons in the Create new policy flow.
Note: We do not recommend editing existing policies (for example, adding an accrual cap). Please refer back to editing and disabling policies here for additional context. If you do apply an accrual cap to an existing policy, any employee with a balance above the cap will have their balance reduced to the accrual cap amount. In this case, you may be required to pay out the difference depending on applicable state law. Please reach out to the customer success team.
Resources
Mineral: State Vacation Carryover + Payout Chart*
*Be sure you’re logged into your Justworks account with administrative permissions to access Mineral.
Disclaimer
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.