Paid Sick Leave Accrual Audits

Paid sick leave is the compliance area most likely to be wrong without anyone noticing. There is no federal statute, so there is no single rule to configure. There are roughly twenty state laws and dozens of city ordinances, each with its own accrual rate, caps, carryover, waiting period, usage increment, and pay stub requirement, and the rules key on where the employee works. A payroll with sites in three states may be running five accrual schemes, and the accrual system only knows the scheme someone typed into it.

An accrual audit recomputes what each employee should have earned, carried, and been allowed to use from the hours they actually worked, and compares that to the balance. This guide covers the parameters every sick leave law has, the jurisdictions that matter most with values checked against the agency sources cited at the end, the union interaction, the tests, the data needed, and how to run the tests as exception reports each pay cycle.

Why sick leave is an audit problem

Three things make sick leave harder to get right than vacation or holiday pay.

The rule is local. A vacation policy is set by the employer. A sick leave rule is set by the state and often overridden upward by a city. An employee who moves from a Chicago site to a suburban Illinois site changes rule sets without changing employer, pay group, or policy code.

The rule is arithmetic on hours worked. Most statutes accrue one hour of sick time per some number of hours worked, with caps on accrual, carryover, and use. Any mismatch between the hours the time system recorded and the hours the accrual engine counted drifts silently, period after period. Exempt employees add a layer because many laws deem them to work 40 hours a week.

The rule has moving thresholds. Waiting periods, size-scaled caps, carryover limits, and reinstatement windows depend on dates and headcounts that change. A rule configured correctly at go-live is not necessarily correct after the company crosses 100 employees or the state amends the statute, and several states amended theirs in 2025 and 2026.

The consequences are asymmetric. Under-accrual is a wage claim with penalties in most states. Over-accrual is an unfunded liability that surfaces at payout or when an employee uses time the policy never granted. Neither is visible in the register; both are visible in a recomputation.

The moving parts of any sick leave law

Every statute can be described with the same set of parameters. If your rule table captures these for each jurisdiction, the audit tests in section 5 can be written once and applied everywhere.

• Accrual rate. Hours of sick time earned per hours worked, usually 1 per 30 or 1 per 40. Some laws count overtime hours toward accrual; some are silent.
• Annual accrual cap. The most an employee can earn in a year, often set higher than the usage cap so unused time is not lost.
• Usage cap. The most an employee can use in a year, which may be lower than what they accrued.
• Carryover cap. How much unused time carries into the next year. Some laws require carryover with no cap, some cap it, some let the employer avoid carryover by frontloading or by paying out the balance.
• Frontloading. Granting the full annual amount on the first day of the year or of employment instead of accruing it. Usually allowed as an alternative and usually removes the carryover obligation.
• Waiting period. Days after hire before an employee may use accrued time, commonly 90, sometimes 106, 120, or up to a year. Accrual still runs during the wait.
• Usage increments. The smallest block an employee can take, set by the employer within a limit the law allows, commonly whole hours or a two-hour minimum.
• Covered reasons. Own illness, family care, preventive care, safe time, and in some jurisdictions any reason. Not tested, but the policy code should keep sick separate from other paid leave so the accrual math is clean.
• Rate of pay. The regular rate; several states require differentials and commissions to be included.
• Notice and pay stub display. Some laws require the available balance on each wage statement or a same-day notice.
• Reinstatement on rehire. An employee rehired within a window, commonly one year, gets the unused balance back unless it was paid out at separation.

Representative jurisdictions

The values below were checked against the state agency pages and statutes listed in the sources section. They are still marked "verify current statute" as a working rule: these laws are amended often, thresholds scale with employer size, and cities add their own layer. The table is the shape of the rule table you need, not a substitute for it.

Cities and counties that impose stricter rules than their state, and must be handled as separate rows in the rule table: San Francisco, Los Angeles, Oakland, Berkeley, Emeryville, San Diego, Santa Monica, Seattle, Tacoma, Chicago, Cook County, Philadelphia, New York City, Minneapolis, St. Paul, Bloomington, Duluth, and Montgomery County. In every case the employee gets the more generous of the overlapping rules, parameter by parameter, so a city row is an override of specific values, not a replacement for the state row.

Union and collective bargaining interactions

Many sick leave statutes let a collective bargaining agreement replace the statutory scheme, but the conditions differ and must be checked per state. California allows it only where the agreement expressly provides paid sick days or paid time off, premium overtime rates, and a regular rate at least 30 percent above the state minimum wage. Oregon lets signatory employers meet the obligation through a multiemployer trust or plan that is at least as generous. Maine excludes employees covered by an agreement in force on January 1, 2021 until it expires. Nevada's Labor Commissioner has issued guidance on agreements that address paid leave. Other states either have no waiver, a grandfathering rule for agreements in force on the effective date, or a waiver limited to specific industries; treat each as "verify current statute".

The audit consequence is that a single site can legitimately run two accrual schemes: the statutory one for non-unit employees and the contractual one for unit employees. The union flag on the employee record selects the rule row, and a misflagged employee accrues under the wrong scheme for as long as the flag is wrong. Where the agreement does not expressly waive the statute, unit employees get the statutory minimum as a floor, and the audit should test the more generous of the two.

Skilled nursing, hospitality, and janitorial employers see this most, because a single building can hold a unit with its own accrual language next to non-unit clinical or administrative staff on the state scheme.

The audit tests

Each test recomputes a value over the pay period or the accrual year and compares it to the balance the accrual system reports. Every test has the same output: one row per employee per failed test, with the rule row applied, the expected value, the actual value, and the difference.

Jurisdiction assignment test. Run first. Each employee's work location must map to exactly one rule row, the most generous of any overlapping state and city rules. Employees with no mapping, or whose location changed mid-period, are flagged. A wrong assignment makes every downstream test wrong for that employee.

Accrual test. Hours worked in the codes the rule counts, divided by the accrual divisor, compared to the accrual posted for the same period, within a rounding tolerance. Exempt employees use deemed weekly hours where the statute provides for it.

Cap test. Accrual posted after the balance reached the cap is an over-accrual; accrual stopped before the cap while hours were still worked is an under-accrual.

Carryover test. At the year boundary the opening balance should equal the lesser of the closing balance and the carryover cap. Higher means the cap was not applied; lower means protected time was forfeited.

Frontload test. Every eligible employee shows the full annual grant on the first day of the year or on the hire date, prorated where the policy prorates.

Waiting period test. Sick usage before the waiting period ends is flagged where the jurisdiction permits a wait. Accrual during the wait is expected.

Increment test. Usage entries outside the policy increments are flagged, and the policy increment is checked against the statutory limit.

Rate of pay test. The sick pay rate on the earning line is compared to the regular rate for the period, including differentials where the statute requires them.

Pay stub test. Where the balance must appear on the wage statement, the balance memo code is present for every employee in that jurisdiction and matches the accrual system.

Reinstatement test. For rehires within the window, the opening balance at rehire equals the balance at separation unless it was paid out.

Negative balance test. Any balance that goes negative during the period is either an unpermitted advance or a feed error.

Data needed

The tests run on five inputs, four of which most payroll and time systems already produce.

• Hours worked by pay code and date, from time and attendance. Regular hours always count toward accrual, overtime depends on the jurisdiction, paid leave codes never do.
• Sick accrual and usage by pay code and date, with sick separable from vacation and general paid time off where the employer keeps separate banks.
• Balances, from the accrual system or from the memo line most payroll systems post each period; that line is what the pay stub test reads.
• Employee dates and attributes: hire, rehire, and termination dates, exempt status, standard weekly hours, work location, and the bargaining unit flag.
• A jurisdiction rule table with one row per state, city, and bargaining unit scheme, carrying every parameter in section 2 with effective and end dates. The only hand-built input, and the one to review each January.

With work location history the tests apportion hours across rule rows for mid-year transfers; without it they use the current location and flag transfers for review.

How Praisidio helps

The audit runs on data Praisidio already holds for a payroll customer, plus one configuration table.

Hours, usage, and balances. The employee hour summary table carries hours by pay code, date, and location for every employee from the time system; countable codes drive the accrual test and sick usage codes drive the increment, waiting period, and negative balance tests. Balances come from the payroll memo table, where the available balance is posted as a memo code each period, so a missing balance line is a finding in the same list as a wrong one.

Employee attributes. Hire, rehire, and termination dates, exempt status, standard hours, work location, and the bargaining unit flag come from the employee record. The change log supplies location history, so a mid-year transfer is apportioned across rule rows rather than tested against only the current location.

The rule table. A custom definition per organization lists each jurisdiction and each bargaining unit scheme with the parameters in section 2 and their effective and end dates. Adding a city ordinance, or a statute amendment such as the 2025 changes in Michigan and Connecticut, is a new row with a new effective date, not a change to any report.

One exception report per test. Each test in section 5 is a stored query that reads the rule table at run time and returns one row per employee per finding with the rule applied, expected, actual, and difference. This mirrors the exception reporting pattern used for healthcare employers running union and non-union tiers at one site: the same identifying columns first, then the rule-specific columns, so every report reads the same way.

Two rhythms. The per-cycle set (accrual, cap, increment, rate of pay, pay stub, negative balance) runs after each payroll preview on a schedule so findings are corrected before balances post. The annual set (carryover, frontload, reinstatement, jurisdiction assignment) runs at the year boundary and when a statute changes. Results are stored per run, which is the audit trail an auditor asks for.

Cycle checklist

• Every active employee maps to exactly one jurisdiction rule row, and the row is the most generous of any overlapping rules
• Union flags are current, and unit employees are on the bargaining unit scheme only where the agreement validly replaces the statute
• Accrual posted this period equals hours worked in counted codes divided by the rate, within tolerance
• No accrual posted beyond the annual cap, and no accrual stopped short of it
• No sick usage before the waiting period ends, where the jurisdiction permits a wait
• All sick usage is in policy increments, and the policy increment is within what the statute allows
• Sick hours are paid at the regular rate, including differentials where required
• The balance line appears on every wage statement in jurisdictions that require it, and matches the accrual system
• No employee balance went negative during the period
• At year end: carryover equals the lesser of closing balance and the carryover cap, frontloaded grants are posted in full, and rehires within the window have their prior balance restored

Frequently asked questions