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Transitioning From Vacation To PTO

Transitioning From Vacation To PTO

What Happens To Accrued PTO When Moving To An Unlimited PTO System?

My company is moving from giving and tracking PTO to an "unlimited" PTO policy. It was inspired by the discussion on this site, actually, but we had been considering that in the past. Anyway, I'm wondering what we need to do with the current PTO balances. Do they just go away, along with the accrual on the balance sheet? Thanks.


Bruce Ficks
Title: CFO
Company: Value Financial Group
(CFO, Value Financial Group) |

If the liability does not have to be paid out then the PTO balances and accrual would be eliminated. I would think that, however, that there may be a transition period during which there are no additional accruals, but that existing balances are still available. Once the accrued balances are used up, then there are no additional accruals and the "unlimited" policy begins for that individual.

Robert Sheidler
Title: Consultant
Company: Self
LinkedIn Profile
(Consultant, Self) |

I suggest that if your company pays PTO, you have a liability. If it is not tied to length of service, hours worked or some similar metric, it may be difficult to quantify the amount of the liability, or to associate it with a specific period, but I think there does need to be a liability on the balance sheet.

I am not sure exactly what you mean by "unlimited" PTO however. I assume employees are not allowed to take off however many vacation days as they wish.... so I assume perhaps what you mean is sick leave, and even there, that you have some limit before the employee would go on long-term disability.


Actually Robert, I do mean unlimited. There are many companies doing this now. See here: Time off is unlimited to the extent that a)employees still have to get their work done and b)time off still has to be approved by their manager. But beyond that, they can take time off w/o worrying about "how much PTO do I have left". And conversely, the company does not have to track PTO or PTO balances. Thus your PTO accruals disappear, as do P&L hits and balance sheet liability. I'm just trying to figure out how we transition from a PTO system with all that stuff, to a non-PTO system where all of that comes off the books.

Topic Expert
Randy Miller
Title: Partner
Company: CFO Edge
(Partner, CFO Edge) |

Different states have different rules on PTO, so you should check with your state labor board regarding the regulations in your state. In California, PTO is treated the same as accrued vacation. It is an earned benefit and as such is a liability that cannot just "go away".

Topic Expert
Shannon Mathews
Title: Controller
Company: Aldrich Services LLP
(Controller, Aldrich Services LLP) |

I know our company had issues when we merged with a California firm. Our Oregon firm had unlimited PTO for the professional staff and there were a lot of complications in Caifornia about having to record an accrual and estimate the CA employees payout when they leave (as CA does require you to payout vacation time or PTO time). Check the rules for each state that you have employees in to ensure they don't have a weird rules/requirements with the unlimited PTO policy.

Topic Expert
Vernon Reizman
Title: CFO
Company: RCM Industries, Inc.
(CFO, RCM Industries, Inc.) |

You need to address the softer side of employee moral. Those employees with earned but not used pto balances do not want to lose out on their past positive behavior. I suggest a one time bonus award to pay off existing accrual balances to the employees. If amount is significant from a cash flow perspective consider paying over time or simply paying a reduced percentage rather than the full 100% accrual.

Topic Expert
Keith Perry
Title: Consulting CFO and Business Operations A..
Company: Growth Accelerator
(Consulting CFO and Business Operations Advisor, Growth Accelerator) |

I see several ways of addressing this:
1) Leave it as an accrual that will get paid out if and when they depart.
2) Grandfather it, where they use it up until it is gone, and are then on the unlimited system (there may be morale, fairness, legal and other issues here).
3) Take Vernon's track and pay it out (note you can't force a lower than 100% in CA)
4) Combine the best aspects of the above for your given situation. I would personally offer a 50% buyout, or leave as an accrual, and be done with it in a "one-time transition period choice".

Topic Expert
Barrett Peterson
Title: Senior Manager, Actg Stnds & Analysis
Company: TTX
(Senior Manager, Actg Stnds & Analysis, TTX) |

You still have a liability for [estimated] compensated absence the accrual to the liability to the extent appropriate. Write off any excess.

Topic Expert
Mark Sphar
Title: Chief Accounting Officer
Company: Veracity Payment Solutions
(Chief Accounting Officer, Veracity Payment Solutions) |

Agree w/ Barrett here. Also suggest that you work through w/ your audit partner. Good points earlier on the state regulations.

Topic Expert
Vernon Reizman
Title: CFO
Company: RCM Industries, Inc.
(CFO, RCM Industries, Inc.) |

Barrett, why would this be? If you pay the person out and start with a clean slate why would you book a libaility for compensated absense time? In my thinking if the person departs tomorrow there is no payout.

Bryan Frey
Title: VP Finance/Corp Controller
(VP Finance/Corp Controller, ) |

Here is some advice I recently had given to me. Remember to always check with your legal counsel when playing with employee PTO plans...

The states your employees are in could well make a big difference. Thus, my note about checking with counsel.

The recommendation would be to pay out the accrued PTO at the time of the change.

PTO is governed primarily by contract principles, and the law directs the Labor Commission to enforce the "contract of employment or employer policy." Therefore, once PTO is earned under the current policy, the right to it as per the terms of the current policy cannot be forfeited. An employer can change its PTO system going forward, but when changing to the new system, the employer must pay employees for the accrued hours under the current system. The best way to handle this would be to pay it out immediately at the time of the change, but there is an opinion letter that suggests if you don't do it then, it will be due at the time of termination.

The employer may not require only those employees with accrued PTO to draw down from that PTO until it is exhausted. This is contrary to the "contract" under which the accrued PTO was earned. It penalizes those employees who saved their PTO. It also would be inconsistent with the new system.

In terms of moving to the new system, I would recommend the employer put in place a written policy that includes some parameters to control employees' expectations and to help managers avoid claims of discrimination. For example, how much total paid time off is it contemplated that a person may take at one time or per year?what happens if an employee needs a leave of absence e.g. pregnancy or a workers' compensation injury leave--would any of that time be paid time off? if so, for how long? (Might want to limit to five days, for example, as there is usually a one week waiting period for temporary disability benefits to start.) I would also recommend that the policy emphasize it is an honor system, that satisfactory performance must be maintained, and that employees are still expected to devote the time and effort of full time employees. I would also stress that requests for PTO days will still be subject to operational needs, including who else is out at the same time.

This new system has its benefits in that there will be no accrued PTO to track or pay out upon termination. However, it could also be subject to abuse by a few individuals. Let me know if they need help drafting or reviewing the new PTO policy.

Anonymous User
Title: CFO
Company: Local Government Agency
(CFO, Local Government Agency) |

I too am really interested in how this works out in the long run.

I've worked for many companies with many different forms of paid absence policies, from none available to very lucrative, non-forfeitable plans.

I saw abuses in every case. And, plenty of issues of "fairness" or lack there of. Enough so, that I've seen good employees leave over perceived inequity. Myself included.

I can't imagine an unlimited policy leading to anything but headaches and legal issues. But then again, I've always worked in the People's Republic of California where, no good deed goes unpunished. ;-)

Topic Expert
Wayne Spivak
Title: President & CFO
LinkedIn Profile
(President & CFO, |

At a CA client and met with the HR consultant (Compliance). She told me starting next summer CA will require a mandatory sick day min which is accrueable.

How does this throw a monkey wrench into the plans!


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