Definition of Carryover Cap

Carryover cap

The carryover cap is the maximum number of hours of paid time off that employees can roll over from one year to the next.

What Is a carryover cap?

The plan administrator determines the date on which the time off calendar year begins. It doesn’t necessarily run from January 1 to December 31. Companies can set up their customized timetables and plans as long as they adhere to all local and state laws.

Offering paid time off and providing employees with flexibility when it comes to accessing that time can help improve relations with those employees. This is where carryover caps come into play.

Allowing employees to roll accrued, unused paid time off to the next leave accrual year is a valuable benefit. However, businesses also need to be sure they are not providing too much of a carryover cap because it has the potential to cause harm to their business.

The paid time off (PTO) can include:

  • Vacation
  • Sick days
  • Bereavement leave
  • Parental leave, etc.

The type of PTO offered will depend on each organization’s individual PTO policy. Any state or local laws that may dictate the amount of leave time an employee is allowed must also be considered.

Why is the carryover cap important to small businesses and HR?

Establishing a carryover cap is essential for companies and their HR departments because it will limit the amount of paid time off an employee can accrue and transfer to the following year.

Why is this so important?

It will help reduce the overall amount of time an employee can accumulate. This ensures they can’t take abnormally long periods off with their unused vacation time.

For example, if there is no carryover cap, someone could roll their PTO days over time and again, slowly building up a month or more off from work that companies would have to honor. Workers out of the workplace for that length of time can potentially be very disruptive.

Companies need to develop a workable vacation policy that works well for their employees and their business needs. Having a plan in place for PTO is essential. It will need to state how much the carryover cap will be to ensure the employees are treated fairly, and business processes are considered.

What Is the history of the carryover cap?

Carryover caps have been around for about as long as accrued leave. Before WWII, though, paid vacation time was generally only something that white-collar workers would have available to them. There was no real reason for a carryover cap because it would have applied to a minimal number of workers.

However, by 1944, most unionized employees had some type of paid time offer. With the increase in the number of employees receiving PTO, there was a need to limit the amount of time they could keep from one year to the next. Thus, the carryover cap was created.

Today, more than 70% of employees have paid time off.

Other terms similar to carryover cap that can help you

Summary of Carryover Cap

The idea of the carryover cap is easy to understand. It’s the number of paid time off hours that you will allow an employee to carry from one year to the next. The amount that you permit will depend on your business.

It’s a good idea to speak with managers to get a better sense of what will and won’t work in your field. Always check whether there are any laws surrounding PTO carryover in your area.

Similar Glossary Definitions You Must Know

Here are some of the other terms you will want to know. You can find information on these and more in the HR Glossary.

  • Time and Attendance Recordkeeping: Time and attendance recordkeeping is mandated by the Department of Labor (DOL) to ensure nonexempt employees are accurately paid for all hours and days worked. This includes tracking not only their regular rate of pay but also that all overtime hours are captured and paid at 1.5 times their regular pay rate.
  • 9/80 Work Schedule: A 9/80 work schedule takes a traditional two-week pay period and divides the work hours so that the employee works a four-day work week every other payroll week.
  • Bereavement Leave: Bereavement leave is a special type of leave given to employees after a close family member dies. This leave provides workers with time away from work to make arrangements, attend wakes, funerals, or other memorial ceremonies, and to process their grief in private.

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