Paid Sick Leave: Pros and Cons of Accrual & Lump Sum Method

Paid Sick Leave: Pros and Cons of Accrual & Lump Sum Method

Q: I know that as of January 1, 2024, I have to provide a full week of mandatory sick leave each year for my employees. Should I go with the lump sum plan or the accrual method?

A: You are correct, starting January 1, 2024, California employers of all sizes must provide a full week of mandatory sick leave each year. Senate Bill 616 increases the current annual amount of California paid sick leave (PSL) from three days to five days or 40 hours(whichever is greater) for eligible employees. Employers have the option to provide this as a lump sum each year (lose it or use it) or they can choose the accrual method which allows employees to earn one hour of PSL for every 30 hours worked. (Alternative accrual methods can be set up as well, but let's keep it to these two methods for the purpose of this Q & A.)

If you choose the accrual method, your employees will earn 1 hour of PSL for every 30 hours they work. They can accrue up to 80 hours or 10 days (whichever is greater) of sick leave but you can limit employee usage of PSL to just five days or 40 hours (whichever is greater) per year.

We expect that many employers will consider switching to the lump sum method to avoid the hefty accrual cap, as well as alter their vacation accrual policies to account for the additional sick leave they are giving to employees.

The lump sum plan can be easier to manage for some employers. You deposit 40 hours into the employee's paid sick leave bank each calendar year and then the balance resets every 12 months. This eliminates the need for accrual caps with huge balances (i.e. 80 hours), which can be confusing to employees since you may limit their use to 40 hours/5 days (whichever is greater) per year. The downside of the lump sum method is that employees may wait until the end of the year and want to take it all at once (so they don't lose it) which can create problems for employers and their end-of-year operations.

Employers may also choose to have two plans. Some employers choose a lump sum for their full-time employees and an accrual plan for their part-time employees. For part-time employees, the accrual option may make more sense because employees only earn PSL for the hours they work and many may not even accrue 40 hours in a year.

It really is a case-by-case analysis based on business needs. CEA members can call us on our HR support line for additional guidance, at 800.399.5331.

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