PTO carryover is the rule for what happens to unused paid time off at the end of the year: it rolls over in full, rolls over up to a limit, or is lost. Federal law leaves this to employers, but some states limit forfeiture of earned time.
| Design | How it works | Check |
|---|---|---|
| Full carryover | All unused hours roll over | Balances can grow large; consider a cap |
| Capped carryover | Up to a set number of hours roll over | Allowed in many states; check forfeiture rules |
| Accrual cap | No more accrual once the balance hits a maximum | Often used where forfeiture is not allowed |
| Use it or lose it | Unused time forfeited at year end | Not allowed in some states |
See PTO accrual cap and PTO payout.
A dental group with 40 employees used a use-it-or-lose-it PTO policy. Every December, staff rushed to use their remaining hours, and the practices struggled to cover the last two weeks of the year. A legal review also found that one of its offices is in a state that does not allow forfeiture of earned vacation.
The group changes the policy for all offices: employees accrue 1 hour for every 26 hours worked, up to a balance cap of 80 hours. Unused hours carry over with no year-end loss, but once someone reaches 80 hours, they stop accruing until they use some.
The next December, PTO requests are spread across the year instead of piled into the last two weeks. Balances are shown on each pay stub, so employees see when they are close to the cap and plan time off before they stop earning.
Year-end PTO problems are mostly surprises. In October, send each employee their balance, how much will carry over and any amount that would be lost or capped under your policy. Remind managers to plan time off for the last quarter, so requests do not pile up in December.
Make sure the balance employees see matches what payroll uses. When time off requests and approvals are recorded in one place and balances update with each approval, the number in October is the number in January.
A clinic allows up to 40 hours of PTO to carry over. In October, 9 employees have balances above 40 hours that would be capped at year end.
Managers meet with each of the 9 to plan time off in November and December, staggering it to keep coverage. By year end, 7 have used enough to stay under the cap, and the other 2 chose to accept the cap. Nobody is surprised in January, and payroll has a clean starting balance for every employee.
The rule for whether unused paid time off rolls into the next year, fully, partly or not at all.
Under federal law there is no rule. Some states do not allow forfeiture of earned vacation, so check where your employees work.
A carryover cap limits how much rolls into the next year. An accrual cap stops new accrual once the balance reaches a maximum.
It depends on state law and the policy. In some states earned, unused vacation must be paid at separation.
A few months before the year resets, so employees can plan time off. Many employers send balances in September or October.
Not always. State and local sick leave laws often have their own carryover rules, which may differ from your PTO policy.
Time off requests, approvals and the schedule sit side by side, so coverage gaps show up before the week starts.