A Paid Time Off Policy is a Win-Win Solution

A paid time off policy offers employers a variety of options. 

Sometimes with paid time off (PTO), employees end up with unused days at the end of the benefit year. When this occurs, typically the unused days can be rolled over or paid out (this all depends on the company’s policies). Many companies allow employees to roll over a set amount. Other policies allow employees to receive pay for unused PTO. PTO policies that allow employees to select between roll over and cash payout can raise serious tax issues, so employers should consult with tax counsel before implementing such a plan. Also, some state laws may not allow employees who have accrued PTO time to lose the time.   

Some employees—if they’ve had a long tenure at a company—will end up with a lot of extra PTO. This is due to the fact that companies usually increase PTO at each five-year milestone. 

I personally know some people who have five or six weeks of PTO left each year, and there’s no way to carry all that time over. 

That’s why many companies have a PTO Sharing Bank, which I think is a wonderful option to have. 

A PTO Sharing Bank is essentially a place where unused PTO hours that exceed the carryover/pay out options go. Employees are also able to donate hours to the Sharing Bank if they choose. Then if something happens to an employee (an illness or a family issue) and he/she needs to take time off, but doesn’t have any days left, he/she can apply for additional PTO hours from the Sharing Bank and take the time off with pay. You may need to consult with counsel on state law to determine if there are any limits on the ability to have such a policy. 

If your company has a PTO Sharing Bank, be sure to determine parameters and include the rules in your paid time off policy, such as who is eligible and under what circumstances.

For example, I once worked with a company to help them transition from having separate vacation, sick time and personal time to having it all rolled into one PTO policy. 

Their employees really liked having the flexibility, and the company allowed for some carry-over on more of the remaining days at the end of the year because they had an employee who had some health problems. The company knew this ahead of time and planned for it because they wanted to allow the employee to have additional paid time off from work. 

Additional PTO Facts

Employers often ask if implementing a PTO program actually reduces unscheduled absences. 

According to the Alexander Hamilton Institute survey I discussed in part one of this Insight, almost 60 percent of the companies that responded said a PTO program did reduce unscheduled absences. A majority of respondents said it reduced unscheduled absences by up to 10 percent. Two and a half percent said unscheduled absences dropped between 11 percent and 20 percent; a little more than three and a half percent said unscheduled absences dropped more than 20 percent. 

The total number of paid days off included in a PTO policy is often fewer in number than the total number of days included in separate vacation, sick and personal day policies, but employees really like the flexibility in scheduling their time off from work and being able to use it whenever they need to without feeling guilty when having to take off to care for a sick child, elderly parent, etc. 

PTO provides a better work-life balance and employees are less inclined to abuse the system by claiming to be sick so that they get all allotted sick days. 

Another fun thing companies can use PTO days for, with minimal cost, is to reward employees for reaching certain goals, such as sales goals, customer retention goals, accident free/safety goals, etc.

For example, if the company reaches its goals for the year, then employees are rewarded with one extra PTO day to use at their discretion. 

Having a paid time off policy truly is a win-win situation for employees and employers.

Having a paid time off policy truly is a win-win situation for employees and employers.