One HR Policy Every Business Should Update in Q1 - Paid Time Off (PTO)

One thing we see all the time is small businesses who create an employee handbook once, feel relieved to have it done, and then never look at it again. Sometimes these employers come our way after 10+ years of having the same handbook in place, without ever updating over the years. The problem is that employment laws don’t stand still. They change constantly, especially around topics like time off, paid sick leave, pay transparency, remote work, and so much more. A policy that was perfectly compliant a year or two ago may now quietly expose your business to risk without you realizing it.

The policy that often causes trouble for employers is paid time off (PTO). PTO is not always just a “perk”. In many states, it is treated as earned wages. That means once an employee earns it, it belongs to them. Employers cannot simply take it away, wipe out balances, or change the rules retroactively. This includes situations where an employer is not able to change the PTO policy or adjust employee balances retroactively. This is where well-intentioned businesses often create legal exposure without meaning to.

We frequently see PTO policies that say things like “use it or lose it,” or that allow negative balances with no repayment terms, or that try to cap accruals in a way that conflicts with the state law in which the employee resides (not where the employer HQ is located). In some states this may be ok, but in states like California, Colorado, Montana, Massachusetts, North Dakota, Washington, and so many more, vacation time vests as it is earned and must be paid out upon termination. Even small wording issues can change whether your policy is enforceable or not.

This is why Q1 is such a smart time to review your PTO and time off policies. It allows you to clean things up early in the year before problems arise. You want your policies to reflect how your business actually operates and what the federal and state laws currently require, not what made sense years ago.

Business owners should look at three key questions when reviewing these policies. First, does this policy match current state and federal law? Second, does it clearly explain how time is earned, used, and paid out? Third, would an employee understand it without needing clarification? If the answer to any of these is no, the policy likely needs updating.

The good news is that this does not have to be complicated. Often, a focused review and some careful wording adjustments can significantly reduce a businesses risk. The goal is not to make policies more restrictive, but to make them clearer, fairer, and legally sound so both the company and employees know what to expect.

For official guidance, you can review federal and state resources directly. The U.S. Department of Labor provides an overview of vacation and leave practices at, then check your state website to be sure you are compliant in the states which your employees work and reside.

Updating your PTO and leave policies may not feel urgent, but it is one of the easiest ways to prevent future disputes, protect your business, and create clearer expectations for your team. A short review now can save you from much larger problems later.

If you’re unsure whether your current policies are compliant or want help reviewing them, Rising Tide HR is always here to support you with practical, business-friendly guidance.