What is PTO rollover or carryover? A state-by-state guide for employers

Benefits of PTO rollover for employers

Simply put, PTO rollover has several benefits for employers:

• Employee retention: PTO rollover is an attractive addition to a benefits package. Not every company provides a PTO option like this, so it can be a good tool to retain your top talent.
• Improved morale: Employees who are not afraid of running out of sick time and vacation time are more likely to avoid burnout. Plus, happy employees are up to 20% more productive, which can have a positive effect on an organization’s bottom line.
• Avoiding PTO crunches: Employers with a “use it or lose it” PTO policy may experience an end-of-year crunch as everybody tries to use their unused vacation time before it’s gone.
• Recruitment: A PTO rollover policy can make a difference when attracting job candidates, and it can be a deciding factor when top talent weighs offers from your company and a competitor.

Benefits of PTO rollover for employees

Employees generally want PTO rollover for the advantages it offers them:

• Flexibility: Rather than stress about losing unused PTO time, employees can save their time off for longer vacations, health emergencies, extended parental care, and other situations. That level of flexibility can provide employees with a lot of peace of mind.
• Improved work-life balance: Not everyone takes a vacation every year. Sometimes, a person can go a year without getting sick. A PTO carryover policy allows employees to go a long time without missing work but then take advantage of that good attendance record to step away for a more extended period. This control over work-life balance leads to more productive employees.

Now that we better understand why having a PTO rollover policy can make sense for everyone at a company, let’s find out if there are any rules regarding these types of programs.

State-by-state regulations on PTO rollover

The way PTO works is not the same in every state. Several states have specific regulations on PTO rollover, and there are different PTO payout laws in various US states:

• California prohibits use-it-or-lose-it policies but allows employers to limit how much vacation time can be carried over. When an employee leaves their job, an employer must pay for any unused vacation days at their final rate of pay.
• Massachusetts allows employees to roll over 40 hours of paid sick leave from one year to the next. Employers can also front-load the entire 40 hours at the beginning of the year.
• Illinois’ Paid Leave for All Workers Act (PLAWA), passed in 2024, allows workers to earn up to 40 hours of paid leave each year and requires employers to allow PTO to roll over.
• New York does not require employers to offer PTO carryover, but it does require them to pay out for unused PTO upon termination.
• Texas allows employers to set their own PTO policies, including use-it-or-lose-it policies, PTO carryover, or payout options.
• Florida also allows employers to set their own PTO policies.

These are just some of the state regulations regarding PTO rollover. You can find your local regulations by searching online or visiting your state’s labor department website.

Common PTO rollover policies

In addition to PTO rollover laws by state, rules vary by company. Does PTO expire? This depends on the employer. Some of the most common PTO policies include:

• Use-it-or-lose-it: Employees must use their PTO by the end of the year, or they will lose it. That is, if an employee has 14 vacation days per year and only uses 10, they’ll start the new year with just 14 days again rather than 18.
• Limited rollover: Sometimes called capped rollover, this PTO policy limits how much PTO an employee can carry into a new year. For instance, an employee may have a vacation cap of 1.75 times their annual accrual rate and will lose the rest.
• Unlimited PTO: In an unlimited PTO policy, there are no specific regulations or requirements for how much PTO an employee can take. In these organizations, it’s especially useful to have the best software for PTO tracking to understand if there is any abuse of the policy.

Best practices for developing a PTO rollover policy

When you’re developing any new company policy, whether it’s a specific vacation policy or a dress code, it’s important to be transparent with all employees and stakeholders. Best practices for making a policy include:

• Asking employees what they want from a PTO policy
• Clearly defining rollover limits
• Setting timeframes for utilizing accrued benefits
• Considering the impact on workforce planning
• Aligning the policy with industry standards and company culture
• Considering legal requirements

After implementing the policy, take the time you need to make sure it’s right for your company. Don’t remove it at the first sign that people are taking “too much” time off; have patience to evaluate the real results of the new policy.