A Paid Time Off Policy Offers Employers A Variety of Options

According to an article on the Society for Human Resource Management’s (SHRM) Web site, a recent Survey of Traditional Time Off and Paid Time Off (PTO) Program Policies, conducted by the Alexander Hamilton Institute, showed that (of the people who responded to the survey):

• 63 percent still have traditional time-off programs (separating paid vacation and sick time off); and
• 37 percent have a PTO bank that combines all their available time off.

That surprised me quite a bit. I expected the PTO bank numbers to be higher and the traditional time off numbers to be lower.

Some organizations have turned to PTO banks because they help reduce the expense of unscheduled employee absences and I think they also help to retain and attract employees. Employees like having a PTO bank because they can use the time however they want to use it.

The Alexander Hamilton Institute survey also stated that employers were asked if implementing a PTO program reduced unscheduled absences. Of those surveyed, 56.5 percent stated that it did. Of that number:

• 54 percent said unscheduled absences were reduced up to 10 percent
• 2.5 percent said unscheduled absences dropped between 11 percent and 20 percent
• 3.6 percent said unscheduled absences dropped more than 20 percent

Of the companies surveyed, 78.4 percent said their PTO program met their expectations; 14.6 percent stated that it exceeded their expectations.

In order to determine if PTO could work for your company, you first need to know the differences between PTO and traditional time off.

The Differences
The major difference between PTO and traditional time off is the flexibility.

With traditional time off, you would have separate vacation time, sick time, personal days and some companies even include holidays in with traditional time off.

With PTO, instead of having different programs for each type of time off (vacation, sick, personal, etc), all the time is incorporated into one bank. Because of this, sometimes the company gives fewer days, but people can use the days the way they want to use them.

For example, with a traditional time off program, an employee might have 14 days of vacation, five sick days and one personal day. With a PTO program, an employee might have 20 days (or some companies do it by hours) to use for any reason.

A Paid Time Off Policy
Paid Time Off policies need to be written so employees are informed of and understand them. A policy should include:

• The number of PTO hours that employees receive.
• What (if anything) the PTO is based on, such as length of service or industry experience.
• Who gets PTO; most companies only give PTO to full-time employees, but sometimes employers allow part-time employees to participate on a pro-rata basis.
• What the maximum accrual is. Some policies call for a maximum amount allowed and if the person reaches the maximum, PTO stops accruing until PTO is used. Other policies limit what can be rolled into a subsequent year. These types of provisions are subject to state laws.
• How PTO is approved. Supervisor approval is usually needed to take time off, at least where the need for time off is known in advance.
• What happens to PTO if an employee gets terminated? Terminated employees are usually paid for accrued, unused hours. If they have a negative balance when they terminate, the negative balance may be deducted from their final paycheck, depending on state laws.  
• How PTO can be taken. For example, many companies require PTO to be taken in blocks, such as two, four or eight hours at a time.
• Leave of absence information. If an employee takes a leave of absence, they are usually required to use all the PTO they’ve accrued at the beginning of the leave. Also, employees usually don’t accrue PTO when they’re on leave.

Interesting PTO Facts
Some other things I found interesting in the Alexander Hamilton Institute survey was there are some companies out there that make their PTO programs “use it or lose it” plans, so if employees don’t use all of their time off by the end of the year, they lose it. As noted above, there may be state laws that affect these types of provisions.

Some companies allow employees to carry over their unused hours as long as they’re used by a certain date in the new year.

Some companies provide a payout for the unused hours. This type of provision may have tax consequences, so speak to your tax advisor if you are contemplating this.

Some companies include holiday hours in their PTO (or in a separate holiday hours bank), and employees get a specific number of holiday hours to use throughout the year. For example, I used to work for a company that gave employees 80 hours of holiday time every year and we could use that time for whatever holidays we celebrated. Tracking holiday time like this allows for more flexibility, which is great for employees who, for example, may celebrate holidays other than those designated by the company. Note that some states may treat these types of policies as vacation policies for certain purposes, so be sure to check with a human resources specialist.  

Another interesting thing regarding PTO is that some companies even allow employees to donate their PTO into a pool for other employees to use during times that they may be going through some sort of emergency or crisis and might not have enough of their own PTO left.

As described in this Insight, a paid time off policy can give employers a variety of options to offer employees. Such a policy allows some flexibility in scheduling time off, which can be a way to attract and retain employees.

When it comes to Paid Time Off (PTO) policies, there are many options available to employers.