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Many employers are revisiting their vacation policies and looking for PTO guidelines. It’s a highly-valued benefit related to work/life balance.
The structure of PTO has broad implications. It influences productivity, profitability, and recruiting.
Let’s explore PTO guidelines.
What Is PTO?
Companies with PTO (Paid Time Off) allow workers to take time off while still being paid their wage.
Employees earn PTO by working their regular schedules. Some companies allow employees to take paid leave off before earning it. If they quit before earning it, however, they may have to forfeit its value from their final paycheck.
According to the Bureau of Labor Statistics, the average U.S. employee receives 10 days of vacation leave. Many companies increase PTO with tenure. They hope it entices employees to stay with the company.
Generous PTO is an important benefit for most employees.
How Is Employee Leave Categorized?
- Sick Time: When the employee or family member is ill, recovering from surgery, or otherwise doesn’t come to work because of a medical issue.
- Vacation: When an employee takes time off for a trip or recreational activity.
- Holidays: Days recognized at the federal level as a holiday. Also called ‘company holidays.’ Government offices and banks are generally closed as well. Some companies give employees a day off for a state holiday.
- Bereavement Leave: The employee is paid for leave taken immediately after the death of a family member.
- Floating Holidays: This is another name for a random paid day off of the employee’s choosing.
- Jury Duty: Employers are required to permit employees to miss work for jury duty.
Do Employers Have To Provide Paid Leave?
Not at the federal level. The Family and Medical Leave Act (FMLA) requires employers to provide unpaid leave. Though they can’t terminate the employee if the time qualifies under FMLA.
Many jurisdictions (states and cities) mandate employers to provide a minimum amount of PTO. Some regulate whether employers must compensate employees for unused paid leave upon termination. This type of regulation is called a ‘PTO pay-out’ law. The size of your business and the type of leave may come into play. To be safe, consult legal counsel. Regarding pay-out laws, when in doubt, pay it out.
What Are The Most Common PTO Policies?
Let’s discuss PTO guidelines for business owners.
Traditional Leave vs PTO
Traditional leave distinguishes between the type of leave. These include sick days, personal days, holidays, and vacation. It’s more complicated to track than uncategorized time off. The acronym PTO usually refers to paid leave that isn’t categorized.
In this structure, each employee gets the same number of annual paid days off. Employees can use them however they like. They can save them for when they are sick. Or they can use them for an extended vacation.
54% of companies that switched to a combined PTO policy saw a 10% decrease in unscheduled absences. 4% experienced a decrease of 20%. (The Alexander Hamilton Institute)
Benefits for Employees:
PTO banks remove the temptation for the employee to ‘pretend’ to be sick when they need a personal day. Employees love having PTO to use from their first day.
Disadvantages for Employers:
In some states unused PTO is treated like vacation pay when an employee quits. This requires the employer to compensate the former employee. In most states, unused sick time isn’t classified as a benefit.
Some companies that have this type of policy experience sick employees coming to work to save their paid leave for vacations.
With unlimited PTO, the employee decides when they need a day away from work. It doesn’t matter why. They can take as many days as they want.
Some employers loosely regulate the way this is used. For example, they can require advance notice and/or manager approval. However, repeated manager rejection of time off requests wouldn’t technically qualify as an ‘unlimited’ PTO program.
Employees who take periodic vacations when they feel they need them are more productive and engaged. They are also more likely to stick with an employer.
What Is A PTO Purchase Plan?
A PTO buy-sell or purchase plan allows employees to buy and sell vacation days. The ‘currency’ is their regular compensation.
Employers who allow PTO buy-sell have to pay attention to tax implications. For this reason, they are often included in a cafeteria program. A cafeteria plan (also called ‘flex plan’ or ‘Code Section 125’) allows employees to use pre-tax earnings to pay for benefits of their choice. These include health insurance, life insurance, supplemental insurance, and flexible spending accounts.
Why Change Your PTO Policy?
Employees aren’t as loyal as they used to be. Some workers don’t have long-term plans for any job. PTO policies are linked to work/life balance. Generous plans demonstrate a commitment to your employees’ quality of life. Millennials are often credited with creating the impetus for more flexible policies. But every generation wants more flexibility.
What Is The Average Number of PTO Days in the U.S.?
According to the Bureau of Labor Statistics (BLS), in 2018 the average PTO for all U.S. employers:
- 9.7 days annually +
- 3-4 days for every 5 years of employment
In 2017, employees with at least five years of tenure received an average of 15 days.
American Workers Don’t Use Their Earned PTO
The U.S. Travel Association has analyzed employee leave in the U.S. for several years. They have validated what many of us suspect—we work too much! A recent study concluded that U.S. workers only use 77% of earned PTO. That totals an average of 5 unused vacation days annually per employee. In 2017, employees forfeited 212 million days.
PTO Guidelines For Employers
Are you a new business owner looking for PTO guidelines? Or perhaps you want to change the current policy at your company. Here are some factors to consider:
Your state might require you to allow employees’ earned PTO to rollover into the next year.
What Do My Competitors Offer?
PTO policies vary by industry, business size, and geographic location. You can find industry information at the Bureau of Labor Statistics.
Glassdoor is an influential site for job seekers. It contains employee reviews of businesses. You can find information about your competitors’ PTO policies.
Do You Have a Lot of Unschedule Absences?
If productivity wanes because of a high rate of unscheduled absences, a PTO bank may help. But it’s tricky to switch policies. Plan wisely and make sure employees don’t lose accruals they have earned. Or you are going to have some ticked employees.
Unlimited PTO Policies Aren’t As Risky As You Think…
If you are struggling to attract employees, you might want to offer unlimited PTO. Employees don’t necessarily take more time off with unlimited PTO. Most companies that switch do not experience a decrease in productivity or an increase in unscheduled absences. But it’s an important benefit for job candidates. In this case, perception is key.
Unlimited PTO might change patterns of leave. Riot Games (the company behind League of Legends) switched to unlimited PTO in 2013. They discovered that employees didn’t take more days off. But they began taking more frequent periods of 1-2 days rather than week-long stretches.
…But They Can Have Unexpected Consequences
Here’s the flip side. Unlimited PTO doesn’t work for some organizations. For example, Kickstarter discontinued their policy because employees were confused about how much was reasonable.
Whatever Policy You Choose: Track It Accurately!
PTO tracking software automates PTO management. PTO is synced with employee timekeeping. It ensures accurate tracking and transparency. It makes it easy for employees to request leave. It makes it easy for managers to approve it. Cloud-based systems allow employees to check their balances any time from a mobile device.
By Liz Strikwerda