Definition of Balance Cap

Unlimited PTO: How to Ensure Employees Get Enough Time Off

A PTO or leave balance cap results from a policy that defines how much accrued time off an employee may carry from one year to the next.

What is a balance cap?

Most companies that offer time away from work have written policies to support them. (If you don’t have your leave policies detailed in your handbook, you need to correct that as soon as possible.) Regardless of whether your company offers a vacation accrual method or an immediate vacation vesting process, there is value in implementing an accrual cap.

A leave balance accrual cap defines the maximum number of days or hours an employee can carry from one year to the next. It also stipulates when those rollover hours or days must be used, so they don’t carry over to the third year.

Why is a balance cap important to my company?

There are several reasons balance caps are valuable. Leave balance caps help your company:

  • Protect employees from burnout
  • Communicate a respected benefit that employees and prospective employees value
  • Budget for the expense of covering an employee who is on vacation or one that must be paid out when they separate from your company
  • Retain happier employees

We know that there are times when extenuating circumstances dictate a freeze on time-off requests. Some periods require you to limit the number of requests that can be made.

These situations make use or lose vacation policies challenging to enforce — not to mention there are some states that ban them.

Allowing your employees to roll a defined number of hours or days over to the next year assures them you value their well-being and mental health. Still, there are a few things you need to consider:

  • What is the maximum amount of time that can be carried from one year to the next?
  • By when does the employee need to use that time from the previous year?
  • What happens if the employee doesn’t use the time by the defined deadline?
  • Are you and your managers committed to ensuring employees have the latitude to use the time that they carried over to the new year?
  • What parameters do you want to put in place about the maximum amount of time an employee can be out per request, barring an approved exception.

In response to some of these challenges, according to an article in the New York Times, some companies have been experimenting with allowing entire departments to be out of the office at the same time. This may be easier if other departments can pick up essential functions during that time. However, even if there aren’t, with proper planning, it is still a possibility.

What is the history of balance caps?

Thanks to the expansion of the railroad, vacation time can be traced back to the 19th century. Vacation caps are somewhat more current but challenging to nail down.

Historically, employees were given a specific number of hours or days away they could use in a given year. In fact, during World War II, employees were encouraged to take a vacation to reduce tensions and help them perform better when they returned to the factories.

In their most simplistic form, balance caps defined the maximum amount of time an employee was allowed. With the development of clear leave policies and benefit offerings, balance caps have since morphed into our understanding of the maximum amount that can be leveraged in the year after the time was initially granted.

So, to that point, you want to ensure you have clearly delineated leave policies in your employee handbook. As you prepare to clearly define your company’s leave policies, it is critical that you check your state’s regulations regarding:

  • How vacation is accrued
  • Vacation time use
  • How vacation time is paid

As you consider implementing leave balance caps, ensure there is a “reasonable amount of time” defined by which the carried vacation must be taken. Mandating any transitioned vacation time must be taken within the first two weeks of the new accrual period would not be deemed “reasonable.”

Other terms similar to balance cap that can assist you

  • Employee handbook: A written document that provides employees with guidance and information on the employer’s mission, values, policies, procedures, and code of conduct.
  • PTO: Paid time off — the consolidation of vacation and sick leave that employees can use for their needs.
  • The PTO Guide — everything you need to know to create a PTO policy for happy, engaged employees
  • Benefit year: Twelve consecutive months covering when a company measures employee benefit eligibility, enrollment, and participation.

Summary of balance cap

A balance cap is a personnel policy your company implements that defines the maximum amount of leave an employee can:

  • Accrue in one benefit year
  • Carry over to the next benefit year

Balance caps are beneficial because companies can effectively budget for employee coverage during leave and vacation accrual payouts when an employee leaves the company.

Similar glossary definitions you must know

  • Employee benefits: Employee benefits are perks provided to employees in addition to their regular wages or salary.
  • Benefits package: The additional perks and incentives that a company offers an employee above their pay rate.
  • Benefits eligible: Your employee handbook and offer letters should clearly state when, or if, an employee is eligible to participate in your company’s benefits program.

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