Paid Time Off: Stats Show Employers Are Re-Thinking “Vacation”

Arizona’s warmer temperatures have arrived and with them comes vacation season. As employees begin putting in requests for time off employers may be interested to know that taking a sick day or requesting vacation is quickly becoming a thing of the past.

In recent years, more employers are experimenting with paid time off (PTO) as opposed to the traditional vacation, sick and holiday benefits packages. Check out these recent labor statistics showing the average amount of sick leave, vacation days and paid time off granted by private sector employers in 2017:

Average Amount of Time Off by Tenure (Private Sector)

What is PTO?

Unlike traditional benefits, paid time off or PTO is a bank of hours that employees can draw from for a number of reasons, including taking a vacation, taking care of a sick child, going to a doctor’s appointment or needing a personal day off from work.

How is PTO Accrued?

Typically employers either credit the employee’s PTO bank every pay period with a specified amount of time, or front load it as a credit at the start of the year.

Example: If the employer offers:

10 paid holidays

+ 10 days vacation (2 weeks)
+ 2 personal days
+ 8 sick leave days,________
= 30 paid days off per year

In this example the employee would bank 30 paid days off. Instead of these days being itemized by the employer for a specific purpose, the employee uses the days at his/her discretion.

How is PTO Distributed?

Employers generally use two methods to distribute PTO days.

1 – Front Load
Some employers credit the full annual number of days to the employee’s account on January 1.

2 – Accrual
Others prefer the days to accrue throughout the year and deposit days each pay period.

Example of accrual rate based on 30 PTO days:
If an employer pays bi-weekly (26 pays) the employee would accrue 1.15 days every two weeks. If the employer pays semi-monthly (24 pays), the employee would accrue 1.25 days at each pay period.

What are the Advantages of PTO?

There are several benefits for both the employee and the employer of using a PTO plan versus the traditional vacation and sick benefits allotment.

• Competitive Advantage: Since most employees do not use all of their sick days, a lump sum of available days off is often viewed as more vacation time which can make companies more attractive.

• Ease of Administration: PTO combines vacation, sick time, and personal leave into one policy, eliminating the need to track and maintain a policy for each one separately.

• Control: When various types of leaves are separate, employees are sometimes tempted to use sick leave granted to them whether they need it or not. With PTO banks, employees tend to save time off to use for vacation.

• Responsibility: Employees are treated as adults and are able to make their own decisions regarding vacation and personal time without having to provide an explanation to their employers.

• Privacy: Employees do not have to lie about being sick to take care of personal issues that they would rather not discuss with their employer.

• Cultural Diversity: Today’s employees recognize a variety of holidays. PTO banks reflect the employer’s respect for employee diversity by allowing them to schedule time off around their own personal holiday calendar.

• Equitable Treatment: Often there’s a perception by some employees that those with children receive more time off than single people without children. PTO banks level the playing field by being objective. Everyone has access to time off based on service.

• Reduced Costs: Employers carry less financial liability to cover accrued vacation time (most PTO plans limit the number of days that can be carried over to the next year).

What are the Disadvantages of PTO?

Unlike traditional employer-controlled time off packages, PTO banks can also present some pitfalls if not properly managed and maintained. Some of these are:

• Potential for Abuse: If an employee chooses to abuse the unlimited PTO policy, it can be difficult to terminate the employee for absence because he or she is technically allowed to take that time off. Establishing and reviewing performance goals can help mitigate this challenge.
• Resistance to Use PTO as “Sick” Time: Employees may view PTO days as too precious to waste on legitimate illness. When employees come to work sick it can hurt company productivity and risk other employees also becoming sick if the nature of illness is contagious.
• No Safety Net: If employees use their PTO time early in the year, they have no safety net if they get sick later on.

All in all, PTO is a viable option that should be considered, as it works well for many companies and can be a beneficial alternative and less of a headache than traditional vacation and sick time policies.

What do I need to consider when designing a PTO policy for my company?

The following factors are ones that should be considered when designing a PTO plan:

Company Culture

• In what industry do you operate? What are you trying to achieve? What types of employees are you trying to attract? If you are not open to flexible work schedules such as flex-time or flex-place arrangements, PTO plans may not be a good fit for your company.

Rules

• How many PTO days will be available to employees?
• Will those days be determined by job level, seniority, or another factor?
• In the absence of illness or emergency, how much notice will you require employees to provide before using a PTO day?
• Will PTO replace all forms of paid absence or will you retain separate policies for typically unanticipated leaves, like bereavement or jury duty?
• Will any of the PTO days be eligible to carry-over to the following year? If not, must the account be paid out at the end of the year?
• How is payment calculated for unused PTO days? Will the employee get 100 percent of the cash value or a lesser percentage?
• If the employee leaves the company, will the individual receive the value of their PTO account? Or will it only be paid out when the employee voluntarily resigns or retires?

Definitions

• What types of absences will you include in the PTO bank?
• For example, how will you define “emergency”? Does a sick child or a flat tire count as an emergency? What about a hangover? Or waking up on the wrong side of the bed?

Management

• How will the program be administered and coordinated with payroll?
• How often will the program be reviewed, and by whom?
• Who will be responsible for ensuring that the company PTO policy complies with State-mandated sick leave policies?

For questions related to PTO policy, Arizona’s Prop 206 or how to go about incorporating both at your company, contact me at 602-903-4047 or email me at jmorrow@employerbenefitsandadvice.com.

Click on the links below for sample resources to get you started.