Paid leave 2026: Three challenges for HR

Managing paid leave grows more complex as states continue to pass more laws every year, particularly for employers operating across multiple states. Two-thirds of respondents are multistate employers and half use separate leave allocations, at least in part to address compliance-based requirements such as paid sick leave mandates.

The survey also found that how PTO is structured, administered and communicated may create misalignment with organizational strategic intentions. In addition, it reveals work culture issues that may deter employees from using their leave.

Meeting the compliance challenge

Employers frequently intend PTO to serve as a competitive benefit (42%), a vehicle for supporting employee well-being and satisfaction (36%) and to comply with state or local paid leave laws (20%). However, using a single PTO bank to serve all these purposes can quickly lead to compliance problems.

Paid sick leave statutes often limit an employer’s ability to set waiting periods, accrual caps or rollover restrictions. The survey analysis points out this incompatibility, noting that when PTO is offered to comply with a legal requirement, the law may limit the employer’s ability to cap rollover hours.

For multistate employers, this may create a compliance challenge: A well-intentioned “one-size-fits-most” PTO policy may inadvertently violate state or local requirements on accrual, usage or rollover. Waiting periods, which 41% of employers report using, present a risk if they are applied to time that must be available immediately by law. For example, under Colorado and Minnesota paid sick leave laws an employee may use accrued paid leave as it accrues.

It’s good practice to regularly review paid leave laws by jurisdiction and identify locations where the rules on accrual, carryover or usage limit employer discretion. Consider separating compliance-driven leave from discretionary PTO to avoid unlawful waiting periods, rollover caps or forfeiture.

Aligning structure and purpose

The survey makes clear that employers favor defined leave structures, with PTO banks or separate allocations by leave type (such as vacation and sick leave) accounting for 88% of leave arrangements combined. Only 18% of employers offer unlimited PTO, primarily to a limited group of senior or exempt employees. Just one-third of employers offering unlimited PTO provide it to all employees.

But the PTO structure that is used more often reflects administrative convenience, rather than strategic focus. Accrual-based systems (used by 69% of respondents) and capped carryover policies (used by a large majority of the 80% that allow rollover) help manage financial liability. And while these systems help provide stability in scheduling, they may appear inflexible to employees unless clearly explained.

Another area where PTO practices may not align with organizational strategy is in communicating the employee value proposition. While 64% of employers view PTO as critical to attraction and retention, only one-third discuss it early in the interview process, and one in five respondents report that they rarely discuss paid leave during the interview process at all.

Employers can address these challenges by aligning PTO design with organizational strategy – matching accrual, carryover and eligibility rules to workforce planning goals (such as retention, adequate coverage and staffing for operations and reducing burnout). In addition, discuss PTO early and consistently during the recruitment and onboarding process using standardized communications to maximize the impact of offering competitive leave benefits.

Increasing utilization

A concerning finding from the survey is that the biggest PTO challenge is not administration, but employees underusing their benefits. While HR teams report that PTO management requires relatively little time, 34% said employees worry about their workload or the optics of taking leave. Another 6% believe employees actively hesitate to use the time available to them.

This may indicate a work culture problem rather than flaws in policy structure. Even when employees know they can use paid leave, they may be discouraged from taking it due to implicit signals (e.g., workload, meeting volume, staffing levels or manager behavior). Over time, underutilization degrades the value of PTO towards employee wellbeing and retention, even when the policy benchmarks well against the market.

Meeting this critical challenge requires moving beyond policy and structures and into work design and leadership behavior. To help determine the extent of the problem, gather data  (perhaps in HRIS reports, if available) on where PTO consistently goes unused. Train managers to support time off without signaling disapproval or inconvenience.

Additionally, people leaders can help set an example by taking their full PTO and visibly disconnecting from the office. Communications should regularly reinforce the message that taking time off is expected and encouraged. This message can be reinforced by building leave coverage into the work design, using cross-training, handoff templates and advance planning to reduce workload and “optics” concerns.

Addressing the bottom line

The Paid Leave 2026 Survey Report confirms that most employers already offer competitive PTO benefits on paper. The harder work lies in structuring leave programs that meet multistate compliance requirements, clearly communicate the value to employees and encourage PTO use through day-to-day operational support. When employers align compliance, PTO design and workplace culture, paid leave shifts from a static benefit to a meaningful driver of engagement and retention.