What Small Businesses Need to Know About Unused Sick Leave

October 17, 2018
What Small Businesses Need to Know About Unused Sick Leave

Sick leave is one of the most common forms of employee leave offered to workers. Allowing workers to recover from an illness or injury before they return to work not only benefits the employee, it benefits the company.

Paid sick time is not a requirement at the federal level: there are no nationwide laws requiring employers to either offer or pay for sick time. But many employers offer the benefit to attract and retain staff. Some states do mandate sick leave payments and policies. For those areas that do not, business is free to create a policy based on their needs and the needs of their staff.

State-Mandated Sick Leave

Several states and municipalities mandate paid sick leave for employees. For these, a specific amount of time has to be allotted annually, typically based on the number of hours worked. These states (and some cities) have other requirements, as well. In some, accumulated (unused) sick leave is payable to the employee if they leave the company. Under other laws, sick time can be carried over from year to year. California, Maryland and Washington are just a few areas in which sick leave is required by law. For those businesses covered under sick leave regulations, careful reviews of any mandates should be made and applied to any company’s internal policies.

Non-Mandated Sick Leave

Where there is no law requiring sick leave be paid, companies can craft policies suited to their needs. It’s important to have a sick leave policy in place and communicate it with staff members so they are clear about the scope of the benefit, how they earn sick time, and how the benefit can be used.

California, Maryland and Washington are just a few areas in which sick leave is required by law. This means that specific amounts of time must be allotted annually, usually based on the number of hours worked.

Can employees cash out their sick leave?

If there is a legislative mandate, cash out payments must be provided in accordance with the law. Where there is no law, cashing out sick time is not required of employers.

Unlike vacation time, sick leave is not considered earned. It’s a benefit employers choose to give to staff. Where vacation time is “earned” based on the amount of service to the employer, sick time is provided, typically with maximum amount of days per year. Many businesses offer 10 paid sick days per year and any additional days would be unpaid time off.

Even though it may not be required by law, some companies provide a sick day cash out option. Internal policies, again, should be in place and administered consistently. Generally, companies pay out 50% of any accumulated and unused sick time to employees who separate. Many businesses exclude sick time cash out payments to employees who are terminated.

Do sick days roll over?

For locations that mandate paid sick leave, a rollover allowance may be part of the law. Without regulations, companies are free to create their own sick time policies, and one consideration is whether or not sick days are use-it-or-lose-it - an employee has to utilize the time off during the year in which it was earned - or if the time earned may be rolled over into the next year(s). Each option has its pros and cons.

Requiring employees to use time off in the year it was earned can help businesses avoid employees coming to work ill and spreading their contagion around. Rolling over sick time may be beneficial as employees “bank” the time for potential future needs. One downside for this benefit could mean extended employee absence, rather than a day or two during the year, but further, there can be a financial impact on the company.

When an employee rolls over sick time, payment made in the future may be at a higher rate than when it was earned. For example, a new employee may start at entry-level wages. Over the course of several years, they may be promoted up the ladder and earn double their original salary. Rolled over sick time will be paid at their current rate of pay, rather than the value it held when it was earned. Most companies that allow sick time rollover simply accepts this loss, as calculating the difference would be burdensome.

When an employee rolls over sick time, payment made in the future may be at a higher rate than when it was earned.

How many days can you call in sick before you need a doctor's note?

While there is no specific legislation that requires, allows, or prohibits employers to ask for a doctor’s note when employees call in sick, a company-wide policy should also cover this possibility so employees know in advance what is required of them. Typically, employers will ask for a doctor’s note if an employee takes more than 3 sick days off, but individual policies can vary. If you do require a “sick” note from a doctor, assure the practice of collecting them is done consistently with all employees.

Why Paid Time Off is a Valuable Benefit

Many companies have shifted from separate vacation, personal and sick time policies to a PTO (paid time off) Policy. This gives employees a predetermined amount of days off per year to use at their discretion. Assuring employees take time off work can help with work/life balance, a critical component to attract, retain and engage.

Whether you provide paid sick time because of legislation or as a benefit to employees, offering sick leave is good for business as well as staff.

This communication is for informational purposes only; it is not legal, tax or accounting advice; and is not an offer to sell, buy or procure insurance.

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