Knowing when employee time off is required to be paid or unpaid can be complicated, especially for small businesses. Understanding federal and state laws can help employers ensure they are complying with the law while keeping track of employee leave.

At the Federal Level: The Family and Medical Leave Act

There is no federal requirement for paid leave in the United States. The Federal and Medical Leave Act (FMLA) is the primary federal requirement for unpaid time off. This requires employers to provide 12 weeks of leave in a 12-month period for bonding with a newborn child, serious health conditions for the employee, or caring for a sick family member.

For small businesses, a key distinction in the FMLA is the 50-employee threshold. The FMLA provision for unpaid leave only applies to private sector employers with 50 or more employees within 75 miles during the current or preceding calendar year. Businesses under the threshold are exempt and need not follow the requirements outlined in the FMLA.

At the State Level: Paid Family, Medical, and Sick Leave

Thirteen states and the District of Columbia have laws requiring paid leave for family and medical reasons: California, Colorado, Connecticut, Delaware, Maine, Massachusetts, Maryland, Minnesota, New Jersey, New York, Oregon, Rhode Island, and Washington. Ten additional states have voluntary systems through private insurance.

It is important that small businesses research and adhere to their state regulations. States often match the FMLA maximum of 12 weeks, but some do not distinguish between small and large businesses. States like Washington, Oregon and Colorado have separate requirements and grant programs for businesses with fewer employees, so businesses need to see if they are above or below their individual state thresholds to qualify for these programs. Some states also have differing contribution rates for their paid leave programs depending on the number of employees.

There are also laws requiring employers to provide paid sick leave in 18 states and the District of Columbia. Many of these laws only require employers to do so for a maximum of around 50 hours, since these policies are usually intended for shorter periods of routine illness of an employee or family member.

More information on state laws can be found on the U.S. Department of Labor website.

Carry Over and Paying out on Termination

A concern for small businesses with paid leave policies is paid time off carrying over or being paid out. This can create a major liability if employees choose to keep their accrued leave unused in favor of payment. Each state has its own requirements for how much PTO can be carried over, whether employers can limit it, and whether employees need to be paid for their accrued PTO balance on termination.

Best practices

Small businesses should investigate their state requirements, record how much leave each employee has accrued, and set carryover limits where necessary. It is important to keep these factors in mind when formulating employee policies and contracts to avoid confusion, unexpected costs, or legal trouble.

If you have any questions about paid leave, the NFIB Legal Center is here to help. You can reach us at info@nfib.org.

Dated July 14, 2025