What Is a Negative PTO Balance?

A negative PTO balance occurs when an employee has taken time off before they’ve earned the time. Because there are no federal or state laws dictating negative PTO, it’s your decision as a business owner to allow such a policy. 

Before you decide if you’ll allow your employees to acquire a negative PTO balance, it’s important to understand some of the complications surrounding this policy. 

The Basics of PTO

PTO, or paid time off, is time employees can request to not be at work but still receive pay. PTO can be a vacation day, a sick day, or any other personal time. PTO does not treat these as separate, but rather time the employee is not at work, for whatever reason they decide.

So what is a negative PTO balance?

A negative PTO balance occurs when an employee takes time off before they have earned it. While that may seem like an odd statement, it’s not uncommon for small businesses to allow employees to take time off before they’ve earned it as a perk of working for the company. Essentially, the employer is loaning out PTO with the expectation those days will be paid back. 

How does an employee pay back a negative balance?

There are two typical ways an employee can pay back their negative PTO balance. The first is to keep working for the employer until they accrue enough PTO to cover what they’ve used. The second is to allow an employer to deduct amounts from their paycheck until the negative balance is paid back. However, the employee must agree in writing to a set wage deduction before the negative balance can be paid back.

As a business owner, you determine if an employee can run a negative PTO balance. It’s an attractive perk for new employees to be sure, but your company’s PTO policy is yours to decide. If you decide it’s an attractive enough perk, be sure to clearly outline the policy in your company handbook so there are no misunderstandings. 

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What if an employee quits or is terminated with a negative PTO balance?

Having an employee quit or get terminated with a negative PTO balance is an unfortunate circumstance. However, federal law is on your side; in most circumstances, you can deduct the amount they owe from their final paychecks. I say “might” because it technically depends on your individual state law.