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 caps and accrual caps.
Carryover caps limit the amount of PTO that carries over from one year to the next. A carryover cap 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 cap may serve as an alternate tool for managing PTO.
HOW TO: SET A CARRYOVER
Setting up a carryover cap 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.
Here you can choose the amount of unused PTO that an employee can carry over when the policy restarts.
If everything looks good, you would then select “Continue” and proceed with completing the rest of the PTO creation workflow.
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.
Accrual 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.
An accrual cap is typically set at an amount greater than the amount that is allotted annually. In California, there is even a requirement that any accrual 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 AN ACCRUAL CAP
An accrual cap can be set during the creation of a PTO policy, under the“Policy add ons” section of the workflow.
Here you would need to set the cap of the number of PTO days an employee can accrue.
Once set, you would then select “Continue” and proceed with completing the rest of the PTO creation workflow.
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.
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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.