Healthy Workplace, Healthy Families Act 2015

Pitfalls of using PTO for the Healthy Workplace, Healthy Families Act

By John Shea, Employer’s Guardian

If you’re an employer in the State of California, you’re no stranger to our government’s ability to create new laws. Healthy Workplaces, Healthy Families Act (aka Paid Sick Leave) was signed last year, and will be in effect July 1, 2015. In addition to providing paid sick leave for all employees, the act contains strong protections for employees. Careless mistakes and inadvertent violations could result in stiff penalties ranging from $50 to $400 per employee. This new law will have a significant impact not only on the compliance side, but could negatively impact your company’s P&L.

This new law applies to all employees– including seasonal, temporary, part-time, full-time, and salaried – are eligible for sick leave if they work thirty or more days in a calendar year. Employers have two options in terms of figuring out how to provide paid sick leave – the accrual method or the lump sum method. Based on the recommendations from Senior Deputy Labor Commissioner, Linda Aguilar, as well as Employment Law Attorney, David Laporiere, Esq., we are advising all of our clients to use the Lump Sum method. This means, if they offered PTO before, they need to convert to Vacation/Sick. This is the safest and least expensive method. We’ve heard from several tow companies that they are being advised to use PTO to satisfy compliance. This advice comes with many challenges, and will add significant labor costs to your bottom line.

Here is a comparison between Vacation/Sick and PTO for your review:

Vacation/Sick (Lump Sum) PTO (Accrual Method)
Maximum of 24 hours awarded upon hire. Max annual accrual cap balance of 48 hours. Max accrual bank of 72 hours.
Only sick leave has to be paid based on Regular Rate of Pay. In theory, all PTO hours has to be paid at Regular Rate of pay.
An employer can reduce the Vacation accrual rate to offset sick leave going forward. Accrual rate must be 0.0333 or greater for every hour worked. Most current PTO plans are 0.0193 (1 week per year)
Vacation only accrues on regular time. Time is accrued on ALL hours, including overtime!
Must have a written policy. No written policy required.
Awarded 24 hours at time of hire, but with the correct written policy, new employees can’t use it until 90 days has passed. Must start accruing upon date of hire. No more 90 day waiting period.
Balance is not carried over year to year. PTO balance carries over year to year.
Don’t have to pay out sick balance at time of termination. Must pay out all accrued PTO at time of termination.


The above chart illustrates the differences between PTO and Vacation/Sick. If your HR staff is recommending PTO, you might consider the financial impact of using PTO. It would appear PTO really isn’t the way to go, as there are many hoops employers need to jump through (accrues on all hours, including overtime, for example). As mentioned, many of our clients have PTO plans that we converting to Vacation/Sick and use the lump sum method. In order to implement correctly, we have been rewriting handbooks and training our clients on how to treat employees who are out on this protected leave.

This protected leave brings up a major change in how you now must treat your employees and manage attendance and tardiness issues. When they have a sick leave balance, and they use it, they are in a protected class. Handling this incorrectly exposes the company a whole other set of expensive risks.

Employer’s Guardian, an HR Outsourcing company, provides Human Resources, Safety, Management Consulting, Payroll, and Worker’s Compensation Administration to more than 2,000 employees across the west. US Companies are moving to HRO Solutions at a rate of 10,000 employees per month. Give John a call if you want to learn more about Sick Leave or What we do and How we do it.