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  1. #1
    Join Date
    Apr 2019

    Default Can an Employer Cash Out an Employee's PTO

    My question involves labor and employment law for the state of: Maryland, but company has offices in California as well

    I have a question about the legality of a company cashing out employees’ accrued time off without their consent while they are still with the company.

    First, some context. I work for a soft-money company. Scientists (Principal Investigators, or PIs) write applications for research grants and contracts and ‘park’ them at the company if and when they win; the company takes a cut and provides business and legal support, health benefits, etc. This is a pretty standard model. Because the company depends on PIs to generate revenue, PIs hold a lot of power (the company has a very horizontal power structure). However, there is very little in the way of guaranteed FTE/coverage and the PIs and their staff more or less have to support themselves. It is not uncommon for even senior researcher to go stretches where they have less have less than full time work.

    However, the company does offer a very generous paid time off (PTO) accrual policy, allowing staff with billable hours to build PTO at a very high rate, with a very high max limit, which will carry on indefinitely. The purpose of this generous program is to provide staff with a buffer for leaner times. Staff also can cash out any portion of their accrued PTO each quarter. Staff with 100% coverage in terms of billable hours, if they desire, can earn 120% of their salary through cashing out PTO.

    Additionally, the company offers extremely generous benefits. In order to be benefit eligible for any period of time, staff only need to maintain 60% FTE. Furthermore, only 20% FTE needs to come from projects (billable hours), and the remaining 40% can come from using PTO. PTO, therefore, can be very much a lifeline—as it is used during lean times to maintain benefit eligibility. By long-standing practice, staff are free to use accrued PTO when and how they choose.

    Per company policy, if an employee runs out of enough hours to charge 20% to projects, he or she will lose benefits, regardless of how much PTO is accrued. However, staff in this position may still very well be active employees of the company—writing proposals, sitting on boards, playing smaller roles on projects, etc. They simply are categorized as non-benefit eligible and will have less work.

    Recently, our CFO indicated that once employees are no longer benefit eligible (moved to part-time status), not only will they stop accruing PTO (per policy), but he will liquidate their accrued PTO and give them a check for a value. I have a problem with this and wonder if it is legal. Can a company legally cash out an employee’s (albeit part-time) PTO without their consent? Note that there is no written or established policy on this, and it is a long-standing, well-established practice at the company to let staff use their PTO when and how they choose. Even though a person is no longer getting benefits, burning PTO hours over time allows them to earn a regular paycheck and not take a huge tax hit all at once.

    What’s worse is that liquidating part-time staff’s PTO makes it much more difficult for them to reach benefit eligibility again in the near future. With enough accrued PTO, employees need less support from projects--just 20%--to to meet the FTE requirement, and use PTO can make up the difference. Once PTO is cashed out, there is no going back, and staff now need 60% FTE from projects alone to meet the eligibility requirement.

    My fear and suspicion is that this is an underhanded way to keep staff from regaining benefit eligibility if they have low levels of project work.

    Is it legal to cash out PTO of employees’ without their consent? Is it legal to have a policy that makes it more difficult for one class of employee to regain benefit eligibility? I am upper management in this company and feel that my staff are not being treated fairly.
    Thank you.

  2. #2
    Join Date
    Oct 2016

    Default Re: Cfo Cashing Out Employees' Pto

    There is no law against an employer paying you what you are owed in a timely manner.

    This may be in violation of some agreement between the employees and the employer but that is a civil issue between the employees and the employer.

    The whole thing with the insurance may be a violation of the ACA and in violation of the agreement between the employer and the insurance carrier but that would be the case with or without the PTO payouts.

  3. #3
    Join Date
    Aug 2013

    Default Re: Cfo Cashing Out Employees' Pto

    In the very narrow question of PTO buy out only, CA explicitly says it is legal.

    On the much broader question of playing PTO games to mess up non-PTO benefits, I have never seen a benefit plan written like that, but if the employer wrote their own plan, then many strange things are possible.
    - Have a benefit attorney read every single one of your benefit plans. The benefit plans may or may not represent a hard legal commitment by the employer. ERISA law may or may not be involved. CA specific law may or may not be involved. Some private tort issue may or may not be involved. Until someone who is very expert in benefit law actually reads the document, there is no good answer to this part of your question. I have some idea where the "third rails" are in writing benefit plans and have a pretty good idea what not to do. But I was taught to avoid this type of mess, not deal with it after the fact. I would have never wrote a plan were some action in the PTO plan affected other benefits. Any marginally well written plan treats each benefit as legally un-related to each other. I would have had a formal policy spelling out exactly what a part time employee is, and what other "benefit challenged" employees were and have each of the benefit plans use that definition as a starting point. I have worked for employers who used expensive national companies to write and annually audit their benefit plans and this is exactly the method they all used.

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