Whether you run a large enterprise or a small business, offering your employees a compensation package like paid time off (PTO) makes them feel valued and appreciated. It is one of the best strategies, apart from health insurance, that the human resource department utilizes to attract and retain top talent.
However, how much paid time off is just the right amount?
There is no straight answer since there isn’t a fixed amount. Plus, PTO is not a requirement of the Fair Labor Standards Act (FLSA). That being said, an employer can’t refuse to pay exempt employees for absence due to disability or sickness. Otherwise, the employer should have a documented policy for PTO that addresses such absences. Also, they can only avoid payment if the employees are not yet eligible for PTO or have used up their paid time benefits.
Paid time off policies differ from one business or company to another. While some give PTO solely to full-time employees, others offer it to all workers. Other employers grant pro-rated vacation, depending on an employee’s employment status and work schedule.
What Is Paid Time Off?
Employees use the terms PTO and vacation interchangeably. However, they don’t mean the same thing. PTO is more encompassing than a vacation. So, what does paid time off mean?
Paid time off, also known as personal time off, refers to an employee benefit program offered by many organizations and companies. It allows employees to take time off for a number of (specified) days and still get compensated. Employees can use their PTO time at their own discretion, and it is often measured in hours.
Think of it as a virtual bank where employers credit additional hours to each employee’s bank over time. Employees can then make withdrawals and use the accrued pay time off when they are actually sick or spend it as they wish.
PTO combines absences related to vacation time, federal holidays, sickness, personal time, disability leave, and maternal/paternal leave.
While the federal law does not provide a minimum requirement for PTO benefits, several states in the U.S. passed mandatory paid sick leave laws. In July 2017, states like Chicago, Arizona, Georgia, and Minneapolis gave workers the right to earn sick leave averaging to 24 to 40 hours a year.
For the most part, employees are not entitled to paid time off, and employers have the power to formulate and implement their own PTO Policies. Paid time off is based upon an agreement between the employer and employee. It can either be in the employment contract or in the company policy. This also includes additional provisions like PTO banks and rollover terms.
How Many PTO Days Can You Give?
There are no standard PTO days. However, many U.S. employers provide paid vacation time based on the length of service of the employee. The longer one has worked in a company, the more days they get on their virtual bank. On average, organizations give employees ten vacation days after at least one year of service and up to 20 days after 20 years of service.
How to Structure an Employee PTO Policy
When it comes to the question of how much time off you can offer, the number of hours can vary a great deal. Generally, the more PTO time you offer, the more attractive and competitive your company is to prospective employees.
However, determining how much time you can offer can be challenging. Some of the factors you should consider include:
- How many PTO days you can afford to offer
- How paid time off will be accrued
- How many employees can take off at the same time
- How much prior notice should employees give before taking paid time off
- How will employees be compensated in case of termination
- How many PTO carry-over days should you allow
You also have to consider local jurisdiction requirements to make sure that you are operating well within the law.
Your PTO policy has to be attractive but also sustainable and affordable to your business. When creating a vacation time policy, it is essential to align your business with the needs of your workers. This way, you can create a policy that benefits both you and your employees. Keep in mind that your vacation policy may be a determinant factor for the valuable job seekers.
Here are the four common policies to consider:
A traditional PTO policy is issued at intervals, that is, monthly, quarterly, or bi-annually. Traditional leaves are categorized as vacation, holidays, sick days, and personal days. Since this policy distinguishes the specific reasons an employee takes time off, it can create complications for the company.
Managers or business owners have to manage PTO balances manually on paper, using a spreadsheet or automatically, using a time tracking software.
Banked PTO (Combined PTO)
Under Banked or Combined PTO policy, employees receive a specific number of annual personal time off to use as they wish. Whether they go on vacation or stay home, it is their choice. Since combined PTO banks don’t differentiate between sick leave and vacation time, a growing number of employers are switching to this kind of policy.
Many companies adopting this policy report a drop in unscheduled absences by up to 10 percent. On top of that, since there is less tracking, it is becoming the most preferred PTO policy among employees. That said, a combined PTO doesn’t work for everyone, especially for employees with health complications who might need to utilize their paid time off on medical treatments.
That’s why it is crucial to involve everyone when formulating a paid time off policy.
Earned (Accrued) PTO
Earned PTO works similar to Combined PTO in that it provides employees a specific number of days each year to take time off work. However, under earned or accrued PTO policy, employees accrue time off over time (throughout the year), usually in hourly increments.
For instance, if one of your employees has accrued 16 days of paid time off, they will earn four days of PTO each quarter.
Unlimited PTO is a new concept whose popularity is gradually catching up. Under this policy, employees have more freedom to take paid time off, making it an attractive perk. There isn’t a maximum number of days that an employee can take off from work. However, employees are required to provide notice to the manager in advance, who may or may not approve requests. The decision depends on whether the employee has a good standing and whether their absence won’t interfere with operations.
Unlimited PTO allows employees to have flexible schedules, and they can choose to take as much time off as possible. However, that doesn’t mean that an employee can just take off whenever they want, without first letting you or your manager know. After all, you employ a worker for a specific role in the company – not to spend time on vacation! This policy might not work well for every company unless you have the right employees who can responsibly handle the freedom.
What’s the Importance of a PTO Policy?
In the past, employees may have lied about their absence from work or how they planned to use their paid time off. However, now that they have the right to take PTO whenever they like and use the hours at their discretion, unscheduled absences have reduced significantly.
Employees also have the flexibility to use the paid time off when they need it most, for example, to take care of a sick child who can’t go to daycare.
Both employers and employees stand to gain from a good PTO policy. However, you must decide how much time off you can afford without hurting the business. Additionally, you must establish clear guidelines that require employees to request PTO in advance, except in special cases like emergencies.
If there are days that your company cannot afford a lot of absences, let them know upfront. For instance, if your business is busiest on big sales events like Black Friday and Cyber Monday, be sure to let them know that PTO on these days is blacked out.
More importantly, enforce the use of PTO. Employees have a tendency to report to work even when they are sick. It is your responsibility as the manager or business owner to send them home to protect your other employees.
‘Use It or Lose It’ Vacation Policy
Some employers require employees to use their vacation time during a specific period. Others may allow them to carry unused paid time off or vacation time over to the next year.
Companies that allow PTO to be accrued may have a limit as to how much PTO time can be carried over to future years – and there may be a deadline attached to the carried over paid time off. Employees in demanding jobs may find it hard to use their vacation days, and allowing them to cash out unused PTO can be highly appreciated.
PTO Policies and Remote Workers
If you’ve been around a while, you must have heard about, and even felt, the devastating effects of the novel coronavirus outbreak. Companies were forced to operate remotely, and many of them are considering making this a permanent setup.
However, how does paid time off work for remote employees? As an employer, you have to shape policies to accommodate all employees. Studies show that giving employees a break from work has significant benefits to both the employer and employee. Some of these benefits are:
- Improved productivity
- Employees have more time with family, hence giving them life satisfaction
- Improved wellbeing and mental health
- Increased creativity
- Reduced stress
The global Covid-19 crisis has changed many things, including the stigma of calling in sick. After the pandemic passes, and people get back to offices, the stigma is expected to weaken, and employees should have time off work to recuperate. This is mainly because no one in the office will want to interact with a co-worker with obvious signs of being sick. Managers should keep in mind that employees’ wellbeing matters a lot to the business, that’s why self-care should be prioritized.
Tracking employee’s time is not only helpful when analyzing employee performance and productivity. It also allows you to manage absenteeism, which can be a big problem for businesses. If you pay workers by the hours worked, a time tracking solution like Traqq makes your record-taking tasks a breeze.
The software allows you to monitor each worker’s activity level. It takes screenshots randomly to keep you up to speed on the progress of projects, eliminating the need to micromanage employees. You can then use the report and timesheet generated to calculate billable hours. With Traqq, payroll inaccuracies and concerns will be a thing of the past.