How to Audit Your Company’s Paid Leave Policies

Your company’s paid leave policies are some of your most important and frequently used policies.  Paid leave policies include vacation and sick leave policies, and the increasingly popular “paid time off” policies which combine vacation and sick leave.  It is important that these policies are clearly written in order to avoid creating misunderstandings with employees.  Poorly written paid leave policies are a frequent source of wage claims filed with the Utah Labor Commission.

The good news is that under Utah law employers are generally able to set the terms of their paid leave policies.  The Utah Labor Commission will then hold employers to their established practices and/or policies.  The following is a checklist of questions to consider when auditing your company’s paid leave policies:

  1. Who is eligible? Your policy should clearly indicate which types of employees are eligible and which are not (e.g., “only full-time regular employees are eligible; part-time and temporary employees are not eligible.”)
  2. How and when is it earned? Is the leave accrued (e.g., earned per pay period) or granted (e.g., given to the employee at the start of the year)?  Your policy should clearly spell this out.
  3. How much leave can employees earn? Be careful to avoid any ambiguities on this issue (and in my experience, this is often where ambiguities exist).  Descriptions should be precise and clear.
  4. Is there a “benefit year” and is it clearly explained? Many policies use some type of benefit year (often the calendar year or based upon date of hire).  Is this issue clearly explained along with other related issues? For example: do employees have the option to carry over a certain amount from year-to-year or cash-out unused leave at the end of the year? (Both of these options are at the employer’s discretion.)  If there isn’t a benefit year, is there a cap on accrual amounts?
  5. Are the permissible reasons for use and the leave request process clearly explained?  While a list of permissible reasons may not be necessary for a combined “paid time off” program, it is important to give some parameters for vacation and sick leave policies.  The process for requesting leave (and preserving the employer’s ability to deny or delay leave requests) should also be clearly laid out.
  6. Are the “little but important details” clarified?  Such details include: 1) when do new hires become eligible and how much leave do they receive during their first year?; 2) what is the smallest increment of time for which leave may or must be used?; 3) what is your policy regarding exempt employees having to use paid leave for partial day absences? (FYI, you can make them use paid leave, but you can’t dock their pay for partial-day absences); and 4) how do employees report use of leave?
  7. Is your policy regarding “cashing out” unused leave at termination clear?  This is the “biggie” when it comes to wage claims.  Your policy must be crystal clear on this topic.  As mentioned above, you have the right to set your policy on this issue (everything from zero, partial and full cash-outs are allowed), but the Labor Commission will hold you to your policy.

Two quick tests to use as part of your audit of your paid leave policies:

  1. The stranger test: give your policy to a person who does not work for the company and ask him or her to read it.  Then, ask the person to explain it back to you.  This will quickly show you if your policy is easy to understand.
  2. The look-at-it-from-every-angle test: Make a list of every conceivable situation that could come up (e.g., employees starting and quitting at various times of the year, etc.) and run those situations through your policy to make sure your policy is solid from every angle.

Happy auditing!

This article should not be construed as legal advice.

Jonathan K. Driggs is an employment law attorney with over 18 years of experience, including 3 years with the Utah Labor Commission.  www.jdriggslaw.com

Jonathan’s full-day “Employment Law for Managers Seminar” is being offered by the Salt Lake Community College Custom Fit Training Program (“SLCC-Custom Fit”) on Thursday, February 24 at the Miller Campus in Sandy. SLCC-Custom Fit uses state funds to help provide cost-effective training seminars for businesses.  SLCC-Custom Fit will pay for half of the seminar fee for qualifying businesses making this seminar an exceptional opportunity at only $75 per participant.  To qualify, your company simply needs to be a “for-profit” business located in Salt Lake County. To enroll, please contact Shannon Strickland at SLCC Custom Fit at 801-957-5293 (the registration deadline is February 10).  For additional information about the content of the seminar see Jonathan’s website at:  http://www.jdriggslaw.com/elms.php

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