February 13, 2024
What is Discretionary Time Off? (DTO)
We’re in an age where new workplace terms are being thrown at us from all angles. One you might have heard ...
Despite your company’s best intentions to offer employees enough paid time off (PTO), they don’t always end up taking all that’s available to them. This is where PTO rollover comes into play.
This situation is more common than you’d expect. More than half of US employees don’t take all their PTO. Whatever the reason, your employees will want to know what happens to their PTO, if not taken within the year.
Read on to learn all you need to know about how PTO rollover works, and how your business should handle it.
PTO rollover is when unused paid time off days carry over to the following year.
For example, let’s say Sarah has 15 PTO days she can use this year. Yet she only uses 10. That leaves 5 days of unused PTO. With a PTO rollover policy, these carry over to the next year, giving her 20 days of PTO next year (instead of 15).
It doesn’t always work this way. Some companies don’t do PTO rollovers. Some do, albeit with conditions.
We’ll dive deeper into this next.
This is generally up to the company’s discretion. However, depending on the company’s location, they may need to follow certain laws related to PTO rollovers.
Some laws state that PTO, once earned, cannot be taken away. In Montana, for example, the law states that “once an employee earns vacation leave, it cannot be forfeited for any reason.”
New Zealand is another example where the law states that employees have the right to carry over unused leave to the following year.
If the law doesn’t give any clear guidance on the matter, then the company can choose how to handle this. They should make it clear to employees whether unused PTO days will roll over to the next year, and how exactly it should work.
This information should be easy to find in the company’s leave policy and/or employee handbook.
If PTO rollovers are not required by law, and the company chooses not to carry over unused PTO into the next year, it generally expires.
Any unused PTO days just disappear. At the start of each year, each employee begins with a fresh slate, no matter how many days off they took in the previous year.
Some companies may do it a little differently, though. They may allow a certain number of days to be carried over, or allow rollovers with conditions.
Before anything, we should just state again that you’ll need to comply with any relevant laws regarding PTO rollovers, before anything else.
If you’re unsure, contact an employment lawyer and make sure you’re covered. This post does not constitute legal advice.
Now, if you’re not required to do anything specific by law, there are a few different ways your PTO rollover policy can work. Here are a few examples.
The first option is to fully carry over any unused leave. Just like in our example earlier – if a person has 5 days remaining at the end of the year, these 5 days are added to their regular leave allowance for the following year.
On the opposite end of the spectrum is a “use it or lose it” leave policy. Any unused leave disappears at the end of the year, and each employee starts from scratch from January 1 (or whenever your company’s administrative year begins).
Another option is to allow a limited number of days to carry over to the next year. For example, you might allow a maximum of 5 days to roll over.
In this case, if an employee has 8 unused PTO days at the end of the year, they’ll be able to take 5 to add to the following year’s allowance.
If another employee has 3 days unused, they’ll be able to take all 3 of those days to the next year.
Another way a limited rollover policy might work is to let employees carry over unused PTO, but just for a limited time. For example, the deadline to use leave before it expires extends to the end of March.
Unlimited PTO is another way to deal with PTO rollover. Or more accurately, not deal with it.
Since there’s no limit or allowance on PTO with this type of leave policy, there’s nothing to carry over to the next year. There’s no unused PTO in the first place.
There are several options open to you (depending on what your local labor laws allow). But is it a good idea to have PTO roll over to the next year or not?
There are pros and cons to each way of doing it. So it’s really up to you as to how you want to approach it.
Here’s a quick summary of the advantages and disadvantages.
As we mentioned, it’s really up to the company how they want to approach this. You’ll want to take into account the pros and cons above. However, make careful consideration as to the effect on your company culture and overall satisfaction of your employees.
There are a lot of benefits, on paper, to making the decision not to carry over unused leave. But the long-term damage to your company’s image may be worse than any financial benefit.
That being said, it’s a very real issue when employees bank up a large amount of leave. It can hurt the company’s balance sheet, as well as the health of your employees.
It may be a good idea to allow PTO to roll over, but be active in pushing employees to take their PTO and not letting it stack up.
You could think about instituting a mandatory PTO policy, where employees need to take a certain number of days off each year. Or, you manually follow up with any staff who haven’t taken time off in a while, and make a plan with them to use their outstanding PTO.
“There are a lot of benefits, on paper, to making the decision not to carry over unused leave. But the long-term damage to your company’s image may be worse than any financial benefit.”
When you use Flamingo’s leave tracker to manage leave in your business, PTO rollovers are easy.
When setting up your leave policy in the app, you’ll have the option to roll over unused leave for each leave type.
This is disabled by default, but with one click you can turn on rollovers.
From here, you can choose whether to allow unlimited rollovers, or a maximum number of days that can be carried over from each year.
As an example, in the example below, you might choose to allow your team to roll over 5 days’ PTO each year, disable rollovers for Sick Leave, and allow unlimited days of Unpaid Leave each year (which means rollovers won’t apply).
You can of course add and customize any other leave types you want for your business.
Easy PTO rollovers are just one of the reasons why Flamingo is the best leave management tool for Slack teams. Better yet, it’s free to try. Just sign up in one click with Slack, take a couple of minutes to set up your team, and see how much easier it makes your life.
Flamingo makes managing your team’s paid time off a breeze.