Leave Laws Every Small Business Owner Must Understand
FMLA, ADA accommodations, state paid leave, and PTO design: what applies to your company and when.
Leave management is one of the most legally fraught areas of HR for small employers. The rules are layered across federal, state, and local levels, and they interact in ways that are not always intuitive. Here is a clear breakdown of what applies and when.
Federal Family and Medical Leave Act (FMLA)
The FMLA applies to private employers with 50 or more employees within 75 miles of a worksite. Eligible employees (those who have worked for the company for at least 12 months and logged at least 1,250 hours in the past year) are entitled to up to 12 weeks of unpaid, job-protected leave per year for qualifying reasons.
Qualifying reasons include the birth, adoption, or foster placement of a child; the serious health condition of the employee or an immediate family member; and qualifying exigencies related to a family member's military service. FMLA leave can be taken all at once or intermittently.
FMLA is not optional for covered employers and cannot be waived by the employee. Interference with FMLA rights or retaliation against an employee for taking FMLA leave are both federal violations. If you are approaching 50 employees, begin preparing your FMLA policy before you cross the threshold.
ADA and reasonable accommodations
The Americans with Disabilities Act (ADA) applies at 15 employees and requires covered employers to provide reasonable accommodations to qualified employees with disabilities, unless doing so would cause undue hardship. Leave is one of the most common forms of reasonable accommodation.
The interactive process is legally required: when an employee requests an accommodation, the employer must engage in a good-faith dialogue to understand the limitation, explore potential accommodations, and document the conversation. Failing to engage in the interactive process is itself a violation, even if no accommodation ultimately proves feasible.
Importantly, the ADA's leave requirement has no fixed time limit the way FMLA does. The question is whether additional unpaid leave is a reasonable accommodation given the specific facts, the employee's role, and the operational impact on the business. This is highly fact-specific and one area where HR guidance is particularly valuable.
State and local paid leave laws
In the absence of a federal paid leave law, a growing number of states have enacted their own requirements. California, Colorado, Connecticut, Massachusetts, New Jersey, New York, Oregon, Rhode Island, and Washington all have some form of paid family and medical leave. Several additional states have paid sick leave laws.
If you are hiring across state lines (including remote employees), you may be subject to leave laws in each state where employees are located, regardless of where your company is headquartered. This is one of the most underestimated compliance risks for remote-first companies.
Designing your PTO policy
PTO policy design is a strategic decision, but it has legal dimensions that are often overlooked. In California, accrued vacation is treated as earned wages and cannot be taken away, meaning 'use it or lose it' PTO policies are not enforceable. Similar rules apply in Colorado and several other states.
Unlimited PTO policies have become popular, but they carry their own risks: without accrual, there is no established balance to pay out at termination (which is advantageous in accrual-payout states), but employees may feel uncomfortable taking leave when there is no clear norm, leading to actual PTO usage lower than traditional plans.
Whatever policy you design, document it clearly in your handbook, apply it consistently, and confirm it complies with the laws of every state where you have employees.