A paid-time-off (PTO) policy is a relatively new employee benefit in the business world. Fifty years ago, the idea of providing employees an annual bank of paid days off to use as they wish was unheard of.
In the past, many businesses used traditional vacation-sick-personal day programs, which allow specific time off in each category vs. a PTO plan’s set bank of days per year for employees to use however they’d like. But PTO plans have been gaining in popularity, especially over the past few decades.
According to a 2016 NFIB Research Center study, 73 percent of small employers offer PTO to most full-time employees. The study also revealed that 67 percent of those employers offer two weeks or more of PTO, and 76 percent calculate PTO amounts based on employees’ length of service.
One similarity between the good ol’ days and now: no government intervention. That’s right, there are no federal laws in the U.S. that require employers to provide paid time off. Compensation for time off, regardless of how it’s managed, is a competitive benefit that can attract and retain employees. The challenge is determining which structure is best for your company.
Should Your Small Business Shift to a PTO Program?
Deciding to move from a traditional time-off plan to a PTO structure requires careful consideration. You should first evaluate your corporate culture to determine if a shift will be met with open arms or resistance. Conducting a cost-benefit analysis is another critical early step. How will your potential PTO plan stack up against the competition? Further still, it’s important to map out how you’ll migrate existing earned vacation and sick time to a new plan.
This homework is worthwhile because the benefits of PTO are plentiful when it’s the right fit. Companies with a paid time off policy report positive results, including:
- Supervisors find PTO tracking easier to administer because they must report only one type of request — instead of sick days vs. personal days vs. vacation days — and as a result, are likely to report time off more consistently.
- Managers don’t have to navigate the minefield of time-off excuses, eliminating possible legal concerns.
- Employees are more likely to give advance notice for requests because they no longer need to justify the need for paid days off.
- PTO is an added benefit for employees who rarely take sick days — they end up with more time off, which is perceived as an incentive and, therefore, a retention tool.
- Morale and productivity improve as other employees feel less burdened by last-minute absences.
- Employers are better able to plan ahead and avoid scheduling gaps, as well as reduce the cost of hiring temporary workers.
- Flexible online tracking services, such as TrackSmart Attendance, allow employees to request time off work — and managers to accurately process these request.
Clearly Define Your Small Business PTO Policy
You and your employees are best served when your PTO plan thoroughly describes what it covers, and how the program is administered. The following six areas are must-haves for a sound PTO policy:
- Definition. Clearly explain what PTO is, what it covers and how it’s tracked. For example: PTO provides eligible employees with paid time off work for vacation, personal time or sick time. No explanation is necessary, and the time can be used however the employee sees fit. When an eligible employee is absent from work for any reason whatsoever, the time is then deducted from the employee’s PTO bank.
- Eligibility. State which employees are eligible for PTO and the process for getting approval. For example: Only active, full-time employees are eligible for PTO, and all PTO must be earned before being taken. Employees with specified years of service are entitled to more PTO than employees who have been with the company for a shorter period. Managers reserve the right not to approve a request for PTO if it will interfere with company operations or adversely affect coverage of job and staff requirements. Whenever possible, employees’ requests for prescheduled PTO will be accommodated, but where scheduling conflicts arise, seniority and workload priority will prevail. Unscheduled absences are discouraged, except in emergency situations.
- Accrual. If your plan is accrual-based (vs. an annual lump sum), it’s important to explain how PTO is accrued, how soon it can be used, the maximum number of hours an employee can accumulate at any one time, and if future hours can be borrowed. For example: PTO may be used as soon as it is accrued. If the total number of PTO hours accrued by an employee is greater than the maximum allowed at any one time, the employee will not earn additional PTO hours until he or she starts using the accrued PTO hours. Length of service with the company determines the rate at which eligible employees accrue PTO. With accrual models, you’ll need to define length of service categories (i.e., 1-4 years, 5-9 years, 10-14 years, 15+ years) and, for each service category, include the PTO hour accrual amount per day/week/month, the annual amount and the maximum accrual limit.
- Request process. Effectively communicate the rules for requesting PTO and be certain your employees fully understand the process. This will get everyone on the same page while ensuring transparency and fairness. For example: Employees must submit PTO requests to their supervisor/manager ___ days/weeks in advance on the standard leave request form. The supervisor/manager will inform an employee if his or her request has been approved or denied in a reasonable time frame. PTO requests should not exceed the maximum number of PTO days/weeks that can be taken consecutively, except in emergency situations. Adequate staff coverage will be considered before granting PTO, especially during busy and high-demand times.
- State Laws. At the state level, paid sick leave laws are gaining in popularity. According to the National Conference of State Legislatures (NCSL), 10 states and Washington D.C. have passed paid sick leave laws. The laws in these states typically outline how sick leave is accrued, how it can be used (e.g. personal illness, care for dependents, absences related to domestic violence, sexual assault or stalking), whether it can be rolled over, and which employers and employees are covered. Ensure you address how your company handles sick leave and your employees’ right to it in the policy.
- Payment of unused PTO. Will unused PTO at the end of the year carry over into the next year or is your company policy “use it or lose it” (employees must use their PTO within the year it is issued)? Will employees be paid or forfeit the balance? Will payout be different when employees are terminated for cause vs. resign willingly? Be very specific and consider applicable state and local laws. For example: Unless otherwise required by state or local laws, all accrued, unused PTO will be forfeited upon termination of employment or lost if not used within the year it is accrued. Any PTO taken that may have been advanced prior to accrual will be deducted from your final paycheck to the extent permitted by law.
Partner with TrackSmart for Customization and Simpler Administration
With TrackSmart Attendance, it’s easy to set up multiple time-off banks, as well as manage carryover time using variables you pick. Depending on the type of PTO program you follow, you also can take advantage of the time-off accruals feature. Instead of doing things by hand or shuffling multiple employee files, everything is done accurately and automatically for hassle-free tracking and administration.