What is PTO Rollover, and How Does It Work?

PTO rollover is just one of many terms you need to understand when setting up your company’s PTO policy.

It’s important for a number of reasons – from ensuring your business complies with all relevant labor laws in your area, to keeping your team members healthy, happy and productive.

Keep reading and we’ll explain everything you need to know about PTO rollover, and how to craft your PTO rollover policy.

PTO Rollover Explained

A PTO rollover policy (also known as carryover) describes what happens to an employee’s unused PTO at the end of the leave year.

In some organizations, any leave that’s not used in the year it’s given automatically carries over to the next year. Others have a limit on the amount of leave an employee can carry over from year to year, while some don’t allow rollover at all.

PTO rollover can apply to any type of leave (including unpaid time off), and often works differently for different leave types (but the core concept remains the same whether it’s vacation time, sick leave, etc).

Different Types of PTO Rollover Policies

Let’s explain a few of the most common ways that PTO rollover (aka PTO carryover) works, to help you understand the concept clearly, as well as how different organizations choose to approach this.

Unlimited Rollover

The simplest option is to allow unlimited rollover – any PTO that the employee hasn’t used will automatically carry over to the following year.

Example:

• John has 15 days of PTO per calendar year. He only uses 10, leaving 5 days remaining. These 5 days are added to his balance the following year, and he starts with 20 days available (15 plus the 5 unused).

Limited Rollover

With this policy, employees are entitled to rollover a limited amount of unused PTO from one year to the next.

Example:

• Leon gets 160 hours of PTO per year, and can carry over up to 40 hours of unused PTO to the following year. This year, he only uses 100 hours, leaving 60 hours unused. He is able to roll over 40 of his 60 hours of unused PTO to next year, so his balance will begin at 200 hours (160 plus the 40 hours rolled over).

Use It or Lose It

A “Use It or Lose It” policy means no unused PTO can be rolled over. If the employee doesn’t use their entire allotment in the year it’s given, any unused PTO will be lost and they’ll start the year with a clean slate.

Example:

• Emiliano gets 18 days of PTO per year. He only uses 15 this year, with 3 days left unused. At the end of the year, his balance is reset, and he starts the new year with 18 days available to use again.

Payout of Unused PTO

Another alternative is to pay out unused PTO at the end of the year, in lieu of having it carry over. The employee receives the value of any unused time as a bonus payment, and their PTO balance resets at the start of the new year.

Example:

• Rachel has 160 hours of PTO per year. She uses 125 hours, leaving 35 hours unused. At the end of the year, she gets an extra payment of 35 hours at her regular hourly rate, and her PTO balance resets to 160 hours again at the start of the year.

Learn more: get the average PTO accrual rate in both the US and around the world, to understand how much PTO you should provide for your team.

Do You Need to Roll Over Unused PTO?

Some state or national laws state that employees are allowed to carry over a certain amount of unused PTO (in some cases, all of it).

Take New Zealand and the state of California as two examples.

In both these places, employees are entitled to carry over any of their unused leave, and they cannot lose their PTO if not used in a specific period.

In the UK, employees are entitled to carry over a maximum of 8 days unused leave from one year to another.

For the majority of US states, rolling over unused PTO is not compulsory. If the law says that employees are not automatically entitled to carry over unused leave, or if the law is silent on the matter, then the business is open to make its own decision on whether or not to roll over unused leave.

It’s also important to note that, in most cases, businesses can choose to go above and beyond the minimums required by law, and may be allowed to roll over some or all of their employees’ unused leave, even if the law doesn’t require this.

How Does PTO Rollover Work With Accruals?

PTO rollover is typically used with lump-sum PTO (meaning PTO is front loaded, with employees getting their whole yearly PTO balance available at the start of the leave year).

If a company uses accruals, it will likely work a bit differently. Instead of an employee’s balance rolling over (or not) at the same point in time (e.g. December 31st), it might work in the following ways:

• Employees receive one year (for example) to use their leave, before it expires. So if someone earns 1.5 days of PTO per month, the 1.5 days they earned in January would have to be used by the following January.
• Accruals may be capped at a certain amount (so once the employee’s balance reaches the cap – 25 days, for example – they stop earning more leave until they use part of their outstanding balance).

It’s most common for companies with accruals to use an accrual cap, or simply let employees constantly accrue PTO, though this is again open to the company to decide (outside of what’s required by law).

Should You Roll Over Unused PTO or Not?

If you’re in a position to decide whether or not to roll over unused PTO in your company, it can be tough to decide which way to go.

There are pros and cons of allowing PTO carryover or not (or limiting the amount of PTO someone can carry over).

Here are a few points to consider for each side, followed by our recommendation.

Pros

• Allowing carryover gives greater freedom and flexibility for employees, letting them save up time off and decide when they want to take it.
• Employees will be happier that they won’t lose any of their earned benefits.
• You avoid mad rushes late in the year from everyone wanting to take their PTO before it expires.
• A rollover policy ensures fairness and legal compliance with distributed teams, as some team members may be living in areas that do not allow use it or lose it policies.

Cons

• It’s easier for employees to neglect taking time off when you allow rollover, which can be harmful to their wellbeing and lead to burnout.
• Employees may stack up large amounts of paid time off, which present significant financial liabilities the business must account for.
• Carryover can result in some team members taking a huge amount of PTO at once, which may cause greater disruptions to the team than smaller periods of leave.

Verdict

So, what’s our verdict?

To be fair, there is no right answer for every company. It’s possible to make it work with full rollover, limited rollover or use it or lose it. The most important part is how you implement it, and doing it in a way that’s fair and supportive for all employees.

But, in general, while it seems employee-friendly to allow complete rollover of PTO, it does present a big risk that people will indefinitely stack up their leave and go too long without taking time off.

This will present bigger problems, for both the employee and the business, in the long run, as frequent vacations are important for maintaining physical and mental health.

Yet there are also problems with “use it or lose it” – circumstances sometimes work out so that someone doesn’t have the chance to take all their allotted time off in the calendar year, and it feels crummy to lose part of your benefits because of this.

So the best way to do it (though again, first make sure you follow any relevant laws) is to allow limited rollover.

If, for example, you provide 20 days of PTO per year, you could allow people to carry over a certain number (6, for example, which would be 30% of their annual allowance) per year.

This way, if it happens that they have a few days left over, they’ll still have the freedom to roll them over to the next year, but it ensures that employees are incentivized to take a decent break or two throughout the year.

Sample PTO Rollover Policy

A key part of implementing PTO rollover (or rollover limits) is a clear policy, easily accessible for employees.

It should be part of your employee handbook, as well as shown to all new employees during orientation.

If you’re looking for a starting point for your team’s PTO rollover policy, here’s a sample policy you can use as a blueprint:

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