What Is Carryover (PTO)?

PTO carryover is the amount of unused paid time off (PTO) an employee can carry over from one year to the next. PTO may include vacation leave, sick leave, parental leave, and bereavement leave, depending on your organization’s PTO policy.

Leave entitlements, including PTO carryover, are a key component of supporting your employees’ well-being. Time off from work helps employees avoid burnout, manage stress, and reduce absenteeism by improving their overall health. 

Not all organizations offer PTO carryover. Some employers have a “use it or lose it” policy—if an employee doesn’t use the leave by the end of the year, they forfeit it. When designing your PTO carryover policy, it’s important to check the laws in the state where your organization is based, as some states prohibit employers from canceling unused PTO. 

Benefits of PTO Carryover

Offering your employees PTO carryover demonstrates your interest in their general well-being, providing them with the flexibility to access additional time off when needed for personal reasons or when unexpected circumstances arise. 

If your employees already have high engagement rates with your PTO policy, introducing carryover is a great form of reward and recognition. 

Potential Problems with PTO Carryover 

At the same time, carryover can present challenges:

• It can be costly. Suppose lots of employees are carrying over large amounts of leave. In that case, an organization can face unexpected expenses when an employee asks to cash out their carryover or when the organization has to cover an employee’s position while on extended leave. This is especially true for small businesses with cash flow limitations.
• It makes it harder to plan for and manage leave. If all of your employees take long leave periods, you may face staffing issues and have difficulty covering their work. This, in turn, can affect workflows and overall profitability levels. 
• As it is, some employees don’t use their allocated PTO—55% of workers report not taking their time off. Allowing them to hold on to unused leave indefinitely removes any sense of urgency to use it. 

There are several ways you can manage carryover to minimize these potential issues. 

Strategies for Managing PTO Carryover 

PTO carryover should give employees flexibility with their leave while also encouraging and incentivizing them to take it. Here are some strategies you can consider implementing as part of your carryover policy to achieve this. 

• Carryover caps. A carryover cap limits the amount of PTO an employee can transfer to the next year. For example, you may limit employees to 5 PTO carryover days a year. This reduces the scope for employees to accumulate and take long periods off. 
• Time limits. Some employers allow employees to carry over PTO but require them to use it within a certain timeframe, for example, the first three months of the following year. This limits an employee’s ability to bank up large amounts of leave, but, more importantly, it encourages them to take regular breaks. 
• Payout. You can offer your employees the option to be paid out for unused PTO at the end of the year. This amount may be subject to caps. Read up on your state’s PTO payout laws here.
• Donate. Some employers allow employees to donate their PTO carryover to a company pool for workers who may need to access additional time off due to extenuating circumstances. 

How to Create and Implement a PTO Carryover Policy

Firstly, consider how you want to manage carryover within your organization. Research the various ways to do so and the potential impact of these on your business operations. 

You should also check whether any laws around PTO carryover apply. For example, in some US states, it’s illegal to cancel an employee’s PTO carryover.

Then seek any contributions from management. They may be able to offer a different perspective or share how PTO carryover works in other organizations they’ve been with. You can also seek input or feedback from employees. 

Once you’ve done this, write the policy. It should clearly set out what carryover is, whether there are any restrictions on it when it can be used, and the relevant approval processes. 

When the policy is finalized, you must communicate it to your employees, so they understand their entitlements. You can share it via email and add it to your employee handbook as well as your onboarding materials. 

Conclusion

When employees don’t use their allocated paid time off (PTO), you can allow them to carry over their leave to the next year. PTO carryover needs to be managed carefully to ensure it complies with any relevant laws and doesn’t negatively impact your business operations. 

You can do this by developing a PTO carryover policy, clearly setting out when employees are entitled to carry over their PTO and any restrictions on it.