Employers offer a variety of leave benefits ranging from paid or unpaid sick and vacation leave, personal days, holidays, bereavement leave and jury duty. Generally, these benefits are negotiated and a matter of agreement between an employer and an employee (or the employee’s representative) and are set forth in an employment contract, policy manual or collective bargaining agreement. But, it can be difficult to determine what is best for you or your business.

The Fair Labor Standards Act (FLSA) does not require payment for time not worked, such as vacations, sick leave or holidays. However, if an employer elects to offer these benefits, they must comply with state and federal laws and regulations.

While employees value paid leave benefits, there are financial costs and administrative challenges employers must account for when offering these types of benefits. Moreover, employers must determine how to define and structure their fringe benefit packages. Specifically, employers need to weigh the advantages and disadvantages of providing separate and distinct forms of leave or combining various forms of leave into one lump sum called Paid Time Off (PTO). Many employers have converted to the method of providing PTO to provide employees with flexibility to take time off when desired. This is also less burdensome administratively because all leave is put into one bucket.

Employers should also consider how to structure the method of accumulating or earning such benefits – for example, an employer may provide an employee a bank of time upfront or allow the employee to earn time over the course of employment. Additionally, they should determine whether to allow employees the option to roll over unused leave, cash it out or place a cap on the amount of leave an employee can earn. Finally, employers need to be aware of the legal requirements for payment of any accumulated or earned, but unused leave upon an employee’s separation from employment. These considerations will vary based upon the type of leave.

In Nebraska, the Wage Payment and Collection Act (Wage Act) governs the manner in which an employer must pay its employees wages, including fringe benefits, during employment and following separation from employment. According to the Wage Act, “paid leave, other than earned but unused vacation leave, provided as a fringe benefit by the employer shall not be included in the wages due and payable at the time of separation, unless the employer and the employee or the employer and the collective-bargaining representative have specifically agreed otherwise.”

This means that employers must pay for any earned but unused “vacation leave” provided as a fringe benefit upon an employee’s separation from employment. To the contrary, other forms of leave that are clearly differentiated from vacation leave (such as sick leave) do not need to be paid out by law. However, an employment contract or policy could expand an employee’s rights by providing the added benefit of a payout.

Employers must also take caution when determining whether to pay out leave upon an employee’s separation from employment when such leave is structured as one lump sum – PTO.  In a 4 to 3 decision, the Nebraska Supreme Court, in the 2013 case of Fisher v. Payflex, held that the employer was required to pay employees for accrued, unused PTO despite the employer’s policy that specifically stated that employees would not be paid for accrued, unused PTO upon termination of employment.  Therefore, upon separation of employment, employers must pay employees for all unused PTO, even if the PTO is a combination of vacation leave, sick leave and personal days.

In addition, certain employers need to be cognizant of their obligations under the Family and Medical Leave Act (FMLA). The Act does require employers to provide unpaid sick leave. FMLA provides certain employees up to 12 weeks of unpaid leave for certain medical situations for either the employee or a member of the employee’s immediate family. Employees are eligible to take FMLA leave if they have worked for their employer for at least 12 months, and have worked for at least 1,250 hours over the previous 12 months, and work at a location where at least 50 employees are employed by the employer within 75 miles. In many instances paid leave may be substituted for unpaid FMLA leave.

It is important for employers to review their PTO policies to ensure they reflect that unused PTO will be paid out upon separation of employment. Overall, employers should consult with an experienced labor and employment attorney to audit their policies or change their practices to avoid potential legal issues and ensure that they are in compliance with the law.

The attorneys at Adams & Sullivan are experienced labor and employment lawyers providing trusted advice and valued results. For more information, call our office at 402-339-9550.



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Adams and Sullivan