Compensated Absence Definition

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on January 30, 2024

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Compensated absences are hours for which an employee is paid at the regular rate of pay when they are unable to perform their job duties because of vacation, personal time off (PTO), or any other kind of absence.

It is important to note that not all companies offer compensated absences, but if your company does not offer this, you are most likely paid sick time.

If you are interested in finding out more about the specific process of how their HR or Talent acquisition team handles these types of leave, make sure to ask them.

How Do Compensated Absences Work?

Compensated absences are taken for time off like vacation, sick days, personal time off (PTO), etc.

What makes these hours different is that the company pays you at your regular hourly rate for those hours. Most employees typically receive a certain number of paid holidays, PTO days, and vacation days every year as a benefit of their employment.

Types of Compensated Absences

There are three types of compensated absences:

  • Vacation days - paid time off given to employees for them to use at their discretion.
  • Sick days - paid time off that can be taken by an employee when they are sick or if they need to take care of a family member who is sick.
  • Personal hours - these are paid time off hours given to employees in addition to their vacation and sick days. They can be used for a wide variety of reasons, including things like taking care of the kids, going to doctor's appointments, etc.

Employers who offer compensated absences also typically have policies that will govern how many hours workers are allowed to take off every year.

When Are Compensated Absences Not Allowed?

Compensated absences are not allowed if an employer's policy states that they do not offer paid leave.

There are even some states where compensated absences can be considered a firing offense, so it is important to make sure you know the exact policy of your company before deciding whether or not to take off work.

Why Should You Know About This Term and How It Affects Your Company

It's important that all employees understand what kinds of leave their employer offers, and that they know how these types of leave are compensated.

Understanding the specific policies in place at your company will help you make decisions about taking off work for certain events or emergencies because it can be confusing to know what is paid time off and what isn't.

What Happens if an Employer Doesn’t Offer PTO but the Law Requires Them

If an employer does not offer compensated absences and they are required to provide certain types of paid leave, there is a risk that the state may fine them for noncompliance.

There are even some cases where employers can be forced to pay employees double the amount of their regular wages for every hour that they were not compensated for.

Why Employers May Want to Use PTO Instead of Sick Leave or Vacation Time

If an employer offers both vacation and sick leave, they may want to use paid time off instead of vacation or sick days when possible.

One reason for this is because there is a limit on the total number of hours that employees can take in a year, but no such limitations exist for PTO.

Other reasons include :

  • There can be no deduction in salary for time not worked on vacation or sick days, but deductions can be made from an employee's PTO as long as it is clear that the policy only allows those deductions.
  • Employees must work a certain number of hours or days to take paid sick leave or vacation time, but this doesn't apply to PTO.
  • There is no risk of getting fired for taking a vacation or sick leave, but there is a risk of losing employment if you take PTO and the policy prohibits it.
  • Paid vacation and sick days can be used as an excuse for employee misconduct, but that does not hold true for PTO.

How to Avoid the Consequences of Not Following the Law

The best way to avoid the consequences is to read your company's policies and understand what they are before taking off any time. If that's not an option, make sure to clarify with your manager whether or not leave will be compensated.

The Importance of Knowing What Type of Leave You're Taking and How That Will Affect Your Employer's Policy

It's important to know what kind of leave you are taking because it will show your employer that you are planning ahead.

Your manager may notice your preparations for future leaves, which could have a positive impact on the way they view you. Also, your employer's policy is different for each type of leave, so it's important to be clear with them about what you are doing.

The Bottom Line

Compensated absences are paid time off given to employees in the form of vacation, sick days, or personal time.

Every company's policy is different when it comes to compensated absences, so it is important that you know your company's specific policies.

If you have any questions about what kind of leave your employer offers and how it's compensated, just ask your manager or HR.

Make sure to read through the policy for each type of leave you're taking so that you don't risk breaking any rules or getting in trouble with your employer.

Compensated Absences FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.

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