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Time Off Considerations for Non-Exempt Employees

Vacation time, or paid time off (PTO), isn’t required under any state or federal laws, yet, almost all employers provide some amount of paid time off to their employees.

The Survey Group’s 2019 Employee Benefits’ Survey, found that all companies surveyed give some form of paid time to their employees and 75% of employers offer vacation and paid time off to their part-time employees. The time that companies offer varies from company to company and, with no federal guidance, employers are left to navigate time off offerings on their own. Another big question in front of employers is determining how to handle their non-exempt and/or hourly employees.

A common dilemma facing employers is: do you want different plans for your exempt and non-exempt employees? While this was common practice years ago, having different plans for exempt and non-exempt employees is less popular now and may be met with unhappiness. The thought process years ago in offering exempt employees more vacation time was that non-exempt employees had the opportunity to earn overtime pay and that by offering more paid time off to exempt employees, companies could even the playing field. The result was that non-exempt employees were demotivated, and their engagement and productivity declined. Best practices now narrow the gap or offer the same time off program to their exempt and non-exempt employees.

Whether you’ll be offering your exempt and non-exempt employees the same plan or a different plan, there are a few matters to take into consideration:

  • While there is currently no federal law, many state and municipalities have implemented paid sick time laws. These laws may interact with a company’s paid time off practices in different ways, depending on the law. Additionally, the way paid sick time is accrued may be different for non-exempt or hourly employees. Be sure to review all the provisions around any potential paid sick leave that could affect other time off programs, such as vacation.
  • According to the Fair Labor Standards Act (FLSA), non-exempt employees must be paid for all hours worked and they are eligible for overtime pay (time and one-half) for hours worked in excess of forty hours per week. This means that, according to federal law, their vacation or paid time off is not part of the calculation when determining overtime pay. In order to appropriately comply with this requirement, systems need to be in place to accurately record and log any paid time off that non-exempt employees take, so that the calculation for overtime pay is correct and can be verified.
  • In many states, any unused and accrued vacation time must be paid out to employees upon termination. Additionally, some states outline whether use-it-or-lose-it policies are lawful. Any time off policy should be designed, keeping these types of regulations in mind.
  • Determine what time is paid vs. unpaid is often subject to collective bargaining agreements. Be sure to consult any such agreements and comply with the guidelines for both exempt and non-exempt employees when writing a vacation or paid time off policy.

Giving employers a competitive advantage while also promoting employee work-life balance and wellness are key to attracting and retaining today’s workforce. Vacation and paid time off benefits help to support these goals, making it even more important to ensure that policies not only support exempt employees, but consider any of the added issues surrounding non-exempt employees.

Learn more about the compliance requirements around offering PTO by checking out this recent article: The FAQ’s of PTO.

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