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Creating an all-encompassing leave policy for your company has become an increasingly complicated and at times confusing task.   There are currently no federal laws in place in the U.S. that require employers to provide paid leave.  However, the same is not true on the state and local level.  More and more states as well as municipalities are adopting paid sick leave policies which differ in many respects from the treatment of other types of leave (i.e., vacation).   Factors that influence the decision-making over the type of policy adopted include: your company culture, your employees, and local or state laws regulating leave policies.

To Pool or Not to Pool

There are two basic types of leave – those to be used frequently (e.g., vacation, personal days, holidays and sick days) and those to be used intermittently (e.g., bereavement, jury duty and disability leave). Some are paid while others are not.

The trend among many employers is to draft “one size fits all” leave policies, encompassing both paid and unpaid leave. This approach is often seen as easier to manage and implement.  While true, this practice needs to be reconsidered in light of the various ways sick leave is being treated in state and municipal legislation.

One benefit of the “one size fits all” leave policy is eliminating the need to determine why the leave is necessary, as all days are drawn from the same pool. Another benefit is eliminating sick day call-ins.  Generally speaking, the administrative tasks associated with documenting leave are also streamlined.  A potential problem with this approach exists in those states that recognize accrued vacation leave as wages to be paid upon separation from employment, while treating other unused leave as non-wages.  Some states treat pooled leave all as earned vacation subject to payment upon separation.

Many employers still administer leave policies that maintain separate “accounts” for every type of leave they provide (unpaid and/or paid).   A benefit of administering different policies for different types of leave is the ability to account for accrued paid vacation leave as wages -- as many states require -- which must be paid to the employee upon separation of employment. Additionally, in many states, paid sick leave is now being treated differently than other types of leave. Separate accounting of paid sick leave could make statutory compliance easier to prove, if challenged.

Choosing a Leave Accrual Method

The leave accrual method employers implement (e.g., calendar year vs. anniversary date vs. granted method vs. pro rata) is impacted by many factors.  Statutory requirements are now dictating the method used for paid sick leave.  The anniversary method is more appealing to those preferring not to pro rate employees in their first year.  It also allows for different accrual rates based upon tenure or title/position.  Management of the leave can be obtained with a tracking system.

The calendar year leave accrual method allows all employees to be on the same schedule. However, a downside is the end of year, “use it or lose it” scramble that many employees face.  For employers, the end of the year is often not a good time to be shorthanded, as employees use up their final allotment of leave.

The simplest time keeping method is the granted method where days are granted in full on a calendar date.  However, this approach has a downside for employers. Since employees accrue their full year of paid time off, employers are potentially liable to pay out the full, unused paid time off, if an employee leaves the company soon after the leave time is granted. The accrual or pro rata method obviously eliminates this problem and is generally considered the better option to use.

Legislation is impacting the crafting of leave policies

State and local laws are requiring a separate and distinct paid sick leave policy due to its disparate treatment by the government. These laws dictate that certain leave defined as “sick leave” is paid leave.  They establish how the leave accrues, how it can be used, how it can be carried over, how much leave accrues, how it is treated upon separation from employment and whether it can be waived. Most laws also provide for a private right of action for violations of the law.

Employers can still place carryover limits or other limitations on non-sick leave where allowed by statute. The employer can dictate that carryover leave be taken by a specific date the following year or lost – an example of a use it or lose it policy. Capping the total allotment is an option even in states that don’t recognize “use it or lose it” policies.

Crafting a viable leave plan is becoming an increasingly difficult task and one that has to balance corporate philosophy with social/governmental agendas. All employers would be wise to have their leave policies reviewed for compliance with current laws -- just to stay ahead of the game.