What Is PTO Carryover?

A lot of companies (especially if they are large) provide their employees with the benefit of paid time off (PTO). PTO is the time an employee gets to take off work and still get their usual amount of pay. There are different ways PTO can be accumulated and implemented. For more details about PTO in general, please see this Paid Time Off article.

Carryover PTO is the amount of PTO an employee has leftover from the previous period (typically stipulated as the calendar year) that your company allows to be carried over into the next period.

Common Types of PTO Carryover

There are four main types of carryover policies to consider.

  • Unlimited carryover. Employees can transfer the entire amount of PTO they didn’t use in the previous period(s) to the next one.
  • Limited carryover. Employees can carry forward only a certain amount of PTO that they didn’t use in the previous period(s). For instance, the policy may allow them to carry over a maximum of 40 PTO hours from one period to the next.
  • Giving PTO away. Employees are able to donate their unused PTO into a bank that is available for coworkers with extenuating circumstances (such as a serious illness or accident) to use.
  • Payout at the end of year. Employees may be able to choose between carrying over their PTO or receiving the pay for the amount of PTO hours they didn’t use in that period.

Should You Allow PTO Carryover?

In general, it’s a good idea for employers to allow PTO carryover. This shows that you are flexible and aware of potential complications that could arise in a given year that could impact time-off plans. While it’s important to set clear expectations, putting too many restrictions on employees’ abilities to take paid time off can cause conflict.

Benefits of Offering Unlimited PTO Carryover

PTO carryover allows for unforeseen or uncontrollable circumstances. For example, during the COVID-19 pandemic, employees faced canceled flights, travel restrictions, and varying mandates as well as personal and family challenges. PTO carryover policies meant that when circumstances changed for employees, that PTO was still available for them to benefit from. Employees appreciate flexibility in their PTO policy.

Benefits of Offering Limited PTO Carryover

Permitting only a limited amount of carryover can protect the company as well as employees.

  • No excessive amounts of PTO at once. If employees are unable to carry over 100% (or the majority) of their PTO each year, it prevents them from taking significant amounts of time off all at once or within short time periods, which could result in difficulty in covering their work.
  • Decrease in employee burnout. Not having the option of saving up a lot of PTO throughout multiple periods can also be beneficial for employees. We all need regular time off to strengthen relationships, improve wellness, and prevent burnout. At face value, it could seem “worth it” to employees to save up for four years to go on a lengthy and incredible vacation, but that four-year period is a long time to work without a break. It is important to incentivize your employees to take regular time off.

Challenges of PTO Carryover

  • Foregoing PTO. Unfortunately, there are many employees who don’t take their PTO, and a carry-over policy could make that easier. If there isn’t as much urgency for employees to take time off, they may keep pushing it out.
  • Expensive. Providing PTO can be a great expense. Enabling employees to carry over PTO can result in significant expenses in a short period of time. This may be especially true for smaller businesses that experience cash flow limitations.
  • Covering the workload. Allowing any type of PTO carryover can make it more difficult for employees’ work to be covered, as they may be gone more often or for longer amounts of time. Employers need to ensure that there are enough employees around to keep the company running smoothly, especially during high-demand vacation times like winter and summer holidays.

How to Create a PTO Carryover Policy

Creating a PTO carryover policy should not be done lightly or rushed (like any other policy). The steps below are not comprehensive, but they should be able to serve as a helpful basis to the creation of a policy.

Step 1: Research

The initial PTO policy may have been decided beforehand or may be created alongside the PTO carryover policy. Whatever the case may be, it is helpful to specifically look into PTO carryover research and gather data. Be attentive to research and data for the pros/cons of PTO carryover and the ways in which it can be implemented (unlimited, limited, paid out, etc.).

Step 2: Collaboration

Present the research/data and participate in an open discussion. It is vital to try to understand how each PTO carryover option might play into the values of your company. Additionally, look at industry standards and how competitive it may make your company’s compensation package. It can be helpful to invite employee feedback for the PTO carryover policy.

Step 3: Implementation

Once a PTO carryover policy has been established, it is important that it is clearly written and communicated to the company. Communication through word-of-mouth or an email is helpful, but it is most prudent to get it into your employee handbook. It is best practice to make sure employees sign off on a document that they understand the policy. Implementation of the policy should be as standardized as possible, but extenuating circumstances always arise. It may be wise to include language in the policy explaining that when necessary, exceptions are up to leadership’s discretion.

It’s argued that Americans don’t take PTO as much as they should. In 2021, one-third of PTO hours were left unused. Due to the benefits of work/life balance, it is important for leadership to model using their PTO.