Does your company offer employees paid sick leave or a paid time off bank? If not, you may be forced to in the near future.

The House of Representatives recently discussed a bill known as the Healthy Families Act (HFA) that would require paid sick leave as a benefit.  It’s likely to come to a vote in the spring.

The act would cover any physical or mental illness, injury, or medical condition. The leave would be legally protected — meaning employees could sue if the company discriminated against people who take time off.

In its current form, HFA would make it mandatory for all employers with 15 or more employees to provide at least seven paid sick days a year to FTEs. Part-time employees would get a prorated amount based on the number of hours they work.

HFA would not apply only to employees’ illnesses. Much like FMLA, it would also allow employees to tend to a sick  family member. 

As currently written,  HFA  defines “family member”  to include any blood relative or anyone whose relationship with the employee is “the equivalent of a family relationship” (e.g., a domestic partner).

What if you already offer paid sick time?

If HFA passes, many employers won’t need to make any changes to their sick-time policies. That’s assuming the company already gives its employees paid sick leave at least equivalent to the HFA seven-day minimum.

It’s unknown at present what the passage of the bill would mean for companies with PTO banks. This will have to be clarified in the final version of the bill.  It’s possible that employers would be required to add seven provisional days to the existing bank to be used exclusively for sicknesses.

The bill would prohibit companies from reducing existing paid vacation or PTO time to offset the costs of complying with the mandatory sick days.  

Fierce lobbying is expected on both sides of the bill, and passage is far from a certainty.

There’s no federal or state law that says you have to offer employees paid vacations or paid time off (PTO).

But for most organizations to stay competitive, it’s a necessity. In the last few years, there’s been a fast-rising trend for employees to claim they’re owed money for unused time when their employment ends.

Vested benefit

While paid vacations and PTO aren’t legally required benefits, it’s a different ballgame once you offer such benefits. There are a host of laws – mostly at the state level – that address what happens with unused time.

In many cases, courts are ruling it’s a vested benefit and must be paid. The most publicized recent case – a class action suit against Target by 270,000 California employees – cost the company $10 million to settle.

But employees in several other states have also cashed in, with major cases pending in Illinois and Washington. In the majority of cases, the dispute centers around an employer’s use-it-or-lose-it policy.

Under these policies, employees typically can’t cash in unused vacation or PTO when they leave the company.

In some states, most notably California and Illinois, there are laws severely limiting employer rights. Meanwhile, the Nebraska Supreme Court ruled that even if an employee handbook clearly says vacations are use-it-or-lose-it, employers have to pay upon termination (Roselund v. Strategic Management, Inc.).

Other states such as Florida and Texas currently favor employers, but that could change as the trend grows.

Employers have won some battles. The Minnesota Supreme Court decided vacation policies are a contract between employers and workers (Lee v. Fresnius Medical Care). In plain English, that means if you got sued in Minnesota, the wording of your policy and the clarity of your employee handbooks would be the deciding factors in the case.

PTO could present problems

Nowadays, many employers save money by lumping vacation days into a single PTO bank with sick pay, personal days, bereavement and other types of paid leave.

But here’s the problem: Even though termination pay for unused sick days and other non-vacation leave are rarely covered by state vacation-pay rules, they may be protected when the days count as all-purpose PTO.

Courts have mixed views on whether employees are entitled to reimbursement for all unused PTO or merely the “vacation portion” of it.

With the rise of PTO policies in place of separate leave, a host of states are considering whether to amend vacation-pay laws or to leave interpretations up to the court system. Meanwhile, some experts recommend organizations with PTO  consider going back to separate vacation and sick banks.

Beware buy-backs

It’s perfectly legal to offer buy-backs for unused vacation or PTO days.
Just keep in mind that FLSA requires you to count this money toward total compensation when calculating overtime pay. Otherwise, you could be sued  for OT violations.

 You can save your company a lot of future headaches – both in terms of lost time and money – by taking a hard look at your vacation pay policies now.

Experts recommend bringing the issue to the attention of senior management and huddling with your organization’s legal counsel. Three questions to discuss:

• Where does your state stand?
• Do you need to revise your handbooks?
• Could PTO cost more money in the long run than it saves now?

In times like these, it’s crucial for colleagues to share their concerns, experiences suggestions. A few weeks ago, HRBenefitsAlert.com ran a special report on calming employees’ 401(k) fears. The reader comments revealed that many benefits pros were just as afraid as employees, and people’s frustration led to some unfortunate carping back and forth between several readers.

The purpose of the comments section, apart from giving people the opportunity to react to the story, is to provide a forum for benefits managers to interact. It’s my hope that we can generate an exchange ideas that have (and have not) been working at readers’ companies during the current situation. Specifically:

• What are you doing to manage health benefits costs as budgets are either frozen or shrink?
• Have you noticed a dip in morale or productivity with all the doom-and-gloom in the news?
• How is your company trying to calm employees’ fears about salary freezes or layoffs, 401(k) losses, health cost shifting and other issues that get a lot of mainstream media focus?
• What are you saying to employees to deliver the news they need to know but also keep morale high?

Thank you in advance for your willingness to share your expertise and personal experiences. Everyone benefits in the long run.

Many organizations have made the switch from separate vacation and sick-time leave to single paid time off (PTO) banks. If you take the plunge, beware hidden traps.

In the last few years, there’s been a fast-rising trend for employees to claim they’re owed money for unused time when their employment ends. The scariest part: Employers haven’t been faring too well in court.

Vested benefit

While paid vacations and PTO aren’t legally required benefits, it’s a different ballgame once you offer such benefits. There are a host of laws – mostly at the state level – that address what happens with unused time.

In many cases, courts are ruling it’s a vested benefit and must be paid.

The most publicized recent case – a class action suit against Target by 270,000 California employees – cost the company $10 million to settle. But employees in several other states have also cashed in, with major cases pending in Illinois and Washington.

In the majority of cases, the dispute centers around an employer’s use-it-or-lose-it policy. Under these policies, employees typically can’t cash in unused vacation or PTO when they leave the company.

In some states, most notably California and Illinois, there are laws severely limiting employer rights.

Meanwhile, the Nebraska Supreme Court ruled that even if an employee handbook clearly says vacations are use-it-or-lose-it, employers have to pay upon termination (Roselund v. Strategic Management, Inc.).

Other states such as Florida and Texas currently favor employers, but that could change as the trend grows.

Employers have won some battles. The Minnesota Supreme Court decided vacation policies are a contract between employers and workers (Lee v. Fresnius Medical Care). In plain English, that means if you got sued in Minnesota, the wording of your policy and the clarity of your employee handbooks would be the deciding factors in the case.

PTO could present problems

Here’s the biggest problem with PTO: Even though termination pay for unused sick days and other non-vacation leave are rarely covered by state vacation-pay rules, they may be protected when the days count as all-purpose PTO.

Courts have mixed views on whether employees are entitled to reimbursement for all unused PTO or
merely the “vacation portion” of it. With the rise of PTO policies, a host of states are considering whether to amend vacation-pay laws or to leave interpretations up to the court system.

Meanwhile, some labor attorneys recommend organizations with PTO go back to separate vacation and sick banks for their own protection.

Beware buy-backs

It’s perfectly legal to offer buy-backs for unused vacation or PTO days. Just keep in mind that FLSA requires you to count this money toward total compensation when calculating overtime pay. Otherwise, you could be sued for OT violations.

You can save your company a lot of future headaches – both in terms of lost time and money – by taking a hard look at your vacation pay policies now. Experts recommend bringing the issue to the attention of senior management and huddling with your organization’s legal counsel.

Three questions to discuss:

1. Where does your state stand?
2. Do you need to revise your employee handbooks?
3. Could PTO cost more money in the long run than it saves now?

In most cases, the mistakes are honest, but costly. An HRA administrator may reimburse an ineligible medical expense (e.g., an excluded service for a pre-existing condition) or an employee may not have met his or her share of a deductible but been paid anyway. Periodic audits are a must.

An even bigger concern: reimbursement fraud. One rather alarming report claims that companies’ payroll departments are organizations’ biggest source of potential benefits fraud. I do not agree with the study author’s conclusion, but it’s still a must-read for the way the study shows just how easily fraud can occur.  

How it happens: The company cuts a check for a legit benefits claim. The check gets cashed – but not by the employee entitled to the money.  Instead, it’s channeled to the payroll employee administering the reimbursement plan. The most vulnerable victims are employees who either don’t know they’re entitled to certain benefits, or are unaware of how much they’re owed. Recently terminated employees are another prime victim.

While the vast majority of Payroll employees are honest, it pays to have procedures in place to:

• keep employees’ and managers’ signatures on file in case the handwriting needs to be audited against reimbursement checks
• run reports of recently terminated employees, and audit canceled benefits reimbursement checks cut in their names
• consider the use of direct deposit for these benefits, and
• establish an anonymous reporting system if an employee suspects fraud.

Are your policy and procedure manuals a lawsuit waiting to happen?

There’s no law that require you provide employees a benefits handbook or manual. But best practice is to have one, so long as you follow some basic rules for what needs to be in there, and what should never be in there. Three sections to review immediately:

• pay policies (especially overtime)
• FMLA, and
• paid leave.

Your choice of wording in these sections could make or break your company’s case if an employee sues. Following are three of the biggest red flags that many firms ignore.

Handbook Taboo #1: Overtime policy violates FLSA

Many handbooks contain the following dangerous statement: “Authorized overtime is paid at 1.5 times the hourly rate.”

From a legal standpoint, that’s the same as saying “Our organization is non-compliant with FLSA’s wage and hour laws.” Under FLSA, if a non-exempt employee works overtime – whether it’s authorized or not – you must pay the overtime rate. No exceptions.

What’s legal is to create policies designed to prevent unwanted OT before employees work it. For example, it’s fine for a hanbook to say, “All overtime must be authorized by your supervisor.”

For such a policy to be effective, however, it’s necessary to have formal procedures for OT-authorization. Your handbook must describe these steps (e.g., written permission from a supervisor), as well as any disciplinary procedures for breaking the rules.

But once the hours are worked, it’s too late not to pay for it. Even if you pay for OT (whether authorized or unauthorized), the mere suggestion in the handbook that you may be withholding pay for unapproved OT could get you sued under FLSA.

Taboo #2 : Vague language on FMLA coordination

Writing FMLA policies in your manuals is one the toughest challenges in creating a compliant handbook.
Federal law says that if you have a benefits manual, you must describe how FMLA overlaps with other company benefits.

Example: Do you require people to use available paid leave and FMLA concurrently? If so, you must include this info in the FMLA section of the handbook.

Otherwise, the employee is entitled to “save up” their 12 weeks of FMLA until after paid time is used up. The result is your organization’s benefits manual accidentally gives away extra family or medical leave that is now protected by the law.

What happens under these circumstances if you terminate an employee for attendance policy violations? Assuming that the excessive leave was the reason for termination, the chances are that court will look at what’s written in your manual and rule in the worker’s favor. 

Taboo #3: Unclear paid time-off policies

Whether you have separate sick time and vacation policies or a single paid time off bank, your manual should be crystal clear on how leave is accumulated, and when and how it may be taken. 

Example: If you expect employees to file written vacation requests signed by a supervisor, but your manual only says “written request” and neglects the need for supervisor approval, a request denied for lack of a supervisor signature may not hold up if the employee challenges it.

When reviewing your paid leave policies, make sure the manual is clear on its descriptions of:

• Eligibility. Do part-timers and/or temps qualify? If so, when?
• Accrual. How do you calculate the banks (e.g., one year of service = 18 PTO days per year)?
• Use. How soon can an employee take leave? Do unused days roll over to the next year or are they calculated on a use-it-or-lose-it basis?

Policies versus procedures

In re-reading any section of your manual, ask yourself, “Is this a policy or is it a procedure?”

Here’s the difference: A policy is where your company stands on a certain issue, such as a policy banning employees from smoking. A procedure is how you get things done. Example: Employees who participate in a smoking cessation program must submit for reimbursement through your Payroll department.

The sections in your manual that describe policies must contain:

• specific descriptions, such as, “Employees may not wear shorts to work,” and
• enforcement details, such as what will happen if an employee violates the dress code?

Meanwhile, sections describing procedures should also be as specific as possible.

For example, compare these two handbook statements for requesting family leave:

1. “If an employee is aware of a need for family leave 15 days or more before it is to begin, the worker must file a request for leave within 15 days of the start date.”
2. “If there’s a foreseeable need for leave, the leave request must be filed ahead of leave within a reasonable time. ”

The first statement is clear and protects your firm if the manual is challenged in court. The latter is open to debate – and possibly lawsuits.

A ruling by Minnesota’s supreme court could pave the way for similar rulings in other states. In this instance, the employer that was sued had a PTO payout policy written into its employee handbooks.

The policy stated that workers were entitled upon termination to payment for their earned-but-unused PTO – except if an employee was fired for reasons of misconduct. It also spelled out the company’s definition of misconduct, which included illegal, abusive and other inappropriate acts committed while on the job.

The firm then had employees sign an acknowledgement of having received the handbook. An employee fired for misconduct put the policy to the test. The court ruled that since PTO is “wholly contractual,” employers have the right to cancel payment if employee violates the agreement.

Before your organization takes similar action, check with your attorney about whether your firm has a formal written policy on PTO cashouts after termination and your state laws on PTO payouts.

Would you consider a benefits program with the potential to boost employee vacation benefits without costing the organization an extra dime?

Then you may want to see if paid time off/vacation banking or PTO pooling is right for your organization.

In a nutshell, PTO banking is a system of employees helping fellow employees by donating their unused PTO days. The main difference between banks and pools is that the former is an ongoing program where employees “deposit” days off every year for any co-worker to use.

Pools are set up for donations to a particular person in need, and employees donate days as necessary. Example: If an employee is diagnosed with cancer or another serious illness, fellow employees can donate PTO days to the co-worker so the person continues to receive a paycheck.

The advantages: Organizations that offer such programs routinely report jumps in employee morale and reduced short-term disability costs.

Offering leave banks and/or pools can enable the whole organization to retain valuable employees or let employees participate in a colleague’s recovery from illness.

Also, since employees typically accumulate PTO through their time of service – with a ceiling on the amount of PTO they can earn – donors soon replenish the days they’ve given up.

Money already budgeted

From an employer standpoint, these programs can help establish a caring, supportive work environment – the No. 1 factor in strong employee morale. Best of all, it’s a no-cost program, because the PTO days that get banked or pooled are already “in circulation.”

In other words, the money to pay the PTO recipients has already been budgeted, as has the cost of covering their absences. Another plus: It’s a way to help employees with a legit need for FMLA, but who can’t afford to take unpaid time off.

The main challenge in setting up these programs: creating a record-keeping system for employees’ deposits to and withdrawals from the bank. Most firms track it via the same system they use for regular PTO.

Who’s using it?

PTO banking and pooling programs have taken off faster in small to mid-size organizations than in large firms. A recent EBRI estimate finds 72% of organizations with PTO sharing programs have 250 or fewer full-time employees.

The use of the programs isn’t limited to employers with PTO. Firms with separate vacation and sick time policies also have such programs. But it’s less common (by nearly a three-to-one ratio) due to the increased administrative burden of tracking different types of donations and withdrawals.

Some organizations with separate sick time and vacation policies get around the hassle by restricting donations to one type of leave (more commonly sick-time donations).

Can complicate buy-back programs

Be careful about starting banking or pooling programs if you also offer a buy-back program for unused PTO, sick time or vacation days. Donors may still be entitled to full compensation for the donated days as well as unused time.

Reason: You can’t hold the employee’s good deed against him or her. The donated day(s) should be re-credited for buy-back purposes. Also keep in mind that buy-backs must be prorated according to total compensation, including any bonuses, overtime, profit shares or other types of non-base compensation.

There has yet to be a major court challenge over buy-backs of donated days. But legal experts warn it’s better to be safe than sorry with your policy.

New Jersey recently became the third state to require paid leave. The new law supplements current FMLA and state family and medical leave laws.

New Jersey employers must give employees six weeks of paid medical leave, effective July 1, 2009. California enacted its plan in 2004. Washington approved five weeks of leave starting in Oct. 2009, but they can’t decide how to pay for it.

In New Jersey, the law applies to all employers – even those with fewer than 50 employees. It’s expected that paid leave will allow more people to take off work for FMLA reasons.

Cause for concern?

Increased leave-taking is one of the top concerns for employers. They’re afraid that paid leave won’t just make it easier for people who need it to take it. They think it’ll also be attractive to people who don’t need it but want paid time off from work. Key eligibility requirements:

• Employees must give 15 to 30 days advanced notice, unless it’s an emergency

• If the leave’s not for childcare, employees have to get certification from their healthcare provider

• Employers can require employees to use up to two weeks of sick, vacation, and other PTO before they qualify for paid leave, and

• Employers can get state approval to provide a similar benefit under a private insurance plan.

Who’s worried most: small employers who are otherwise exempt from FMLA. The New Jersey law is a brand new requirement for them and many companies are afraid it’ll be tough for the organization to pick up the slack for leave takers. Meanwhile, HR and supervisors will have to deal with added paperwork.

Employees foot the bill

But, there’s some good news: As long as an employer doesn’t fall under the umbrella of FMLA or the New Jersey Family Leave Act, it can permanently replace employees who take leave.

In addition, employers won’t have to foot the bill. Employees are compensated for leave through a payroll tax. The plan’s set to take effect July 1, 2009. They’ll start taking out payroll deductions January 1, 2009.

Payroll deductions will equal about $33 a year per employee. Employees won’t be able to collect their entire payroll. Instead they get two-thirds of their salary, up to $524 per week.