“Year after year, towns spend taxpayer money to fund costly, wasteful year-end bonuses for public employees that are hidden from taxpayers. The laws on sick leave payments are being ignored by a lot of towns, and this is putting a financial strain on taxpayers. Mayors and council members who want to lower property taxes are missing an opportunity to do so.”   – Acting State Comptroller Kevin D. Walsh

As of February 2021, divisions within the Comptroller’s Office included:

• Audit Division
• Investigations Division
• Medicaid Fraud Division
• Procurement Division

What are sick leave payouts?

Sick leave is an important benefit for employees to use when they’re ill. Employees can stay home, get better, and still get paid.

However, many New Jersey towns pay public employees for unused sick days at the end of the year or agree to pay them at the end of their career.

 “putting a financial strain on taxpayers”  

In 2007 and 2010, the New Jersey Legislature passed laws limiting when sick leave payments may be made, how much can be paid, and to which employees.

Their goal was to lower property taxes by prohibiting extra payments of hundreds of thousands of dollars to a single public employee.

OSC, the state’s independent watchdog agency, surveyed 60 towns in NJ to see if they follow the law. 47 out of the 60 were found to be in violation.

What does the law say? 

• All employees hired after May 2010 can’t receive more than $15,000 for their unused sick leave

• Employees can only receive that $15,000 at retirement – not when they resign, change jobs, or as an annual payout

• Employees can’t carry over more than a year’s worth of vacation time

• In addition, after 2007, certain senior local government employees cannot receive more than $15,000 for their unused sick leave

Only about 13 towns are following the law on sick leave payouts

OSC found that the vast majority of the 60 towns we sampled have policies that still allow hefty sick leave payouts that violate the reform laws.

Lakewood Township was not singled out but was included as one of the least among the 47 (out of 60) with only two potentially problematic items:

Summary of Relevant Contract Provisions and Ordinances:

Lakewood reported that both Lakewood’s Ordinance and Policy Manual cap accrued sick leave payments at $15,000. The Ordinance allows the payment at separation and its Policy Manual allows it at resignation or retirement. Its union contracts all consistently cap accrued sick leave at $15,000. All allow payment upon separation of service, not just retirement. Two of its contracts allow terminal leave, stating, an Employee may use the above earned and accumulated sick days, vacation days and holidays immediately preceding retirement or termination for any reason, but during this time of running out these earned and unused sick days, an Employee shall not accrue or accumulate sick [days/hours], vacation [days/hours] and/or holidays.



Also reported were, while three of Lakewood’s contracts have no provisions concerning vacation accrual, Lakewood’s Policy Manual and the other four union contracts are consistent in accruing vacation leave to the following year only. One of its contracts allows employees to receive payment for ten unused vacation days. Another contract allows employees to receive payment for up to 40 hours of unused holiday and vacation time. 

Findings: Lakewood Responds

Based on Lakewood’s own response to the OSC’s survey, its ordinances, Policy Manual, and union contracts, OSC finds that:

1. The terms of Lakewood’s personnel manual do not comply with the 2007 law (N.J.S.A. 11A:6-19.1) with regard to sick leave payments. Its personnel manual allows for payment of accrued sick leave at a time other than retirement for covered employees.

2. The terms of Lakewood’s union contracts do not comply with the 2010 law (N.J.S.A. 11A:6-19.2) regarding sick leave payments. Its union contracts all allow sick leave payments at a time other than retirement for employees hired after May 21, 2010. Two of its contracts also allow payment of terminal leave for employees hired after May 21, 2010.

The result today?

Local public employees in NJ get large payments for their unused sick days that are basically yearly bonuses. Bottom line: Taxpayer funds are being wasted. At least a majority – and possibly more – of towns we surveyed have wasted taxpayer funds on payments that violate the law, creating a financial liability of many millions of dollars for taxpayers.

The result tomorrow?

Tens and hundreds of thousands of taxpayer dollars per employee could be wasted by towns decades into the future. This is exactly what the 2007 and 2010 laws were supposed to prevent.

Based on the 60 municipalities OSC reviewed, the goals of the 2007 and 2010 laws involving especially sick leave have not been meaningfully implemented. Taxpayers have not been protected in the way intended by the Legislature. OSC therefore recommends that the Legislature consider amending and supplementing the 2007 and 2010 laws to ensure that local governments comply with them. A comprehensive review of senior employees who are exempted from the 2007 law is appropriate after 15 years of experience with statutes that allow a substantial number of senior employees hired before May 21, 2010 to receive annual and uncapped sick leave payments. The Legislature should further take into account that many employees of local governments hired before May 21, 2010 continue to receive exorbitant sick leave payments, on top of vacation and terminal leave payments, that far surpass benefits available to state employees. Also, incentives and bonuses threaten to impose substantial supplemental cost on taxpayers for sick leave. The original goal of subjecting local and state employees to the same policies at retirement has not been achieved.

OSC further recommends that the Legislature impose accountability measures. There are
currently no accountability measures in place to ensure compliance, such as a requirement that a business administrator or municipal finance officer, certify that the requirements of the 2007 and 2010 laws are enforced. The Legislature could require multiple levels of written approval within the local government, including by the municipal financial officer, municipal manager, and attorney.

Requirements involving transparency would also help protect taxpayers. The Legislature could require supplemental payment policies to be posted online and require supplemental payments to be publicly noticed for 30 days and then approved by resolution of the council, with justifications and relevant documentation made available to the public. This would avoid what amounts to substantial bonuses being awarded without any notice to the public.
The Legislature should also consider directing one or more state agencies to adopt regulations under the Administrative Procedures Act (APA), N.J.S.A. 52:14B-1 to 52:14B-31, that interpret and implement the 2007 and 2010 laws. The adoption of rules under the APA provides for transparency, creates a public record, and enables the public, including local governments and public employees, to participate. Rulemaking also provides an opportunity for the Legislature to review and veto how legislation is being interpreted under the Legislative Review Clause of the New Jersey Constitution.39 Rules are required to be revisited at least every seven years and can take into account actual experience with the implementation of the laws.