Offering benefits to employees is a great way to attract and retain great talent. But how exactly do you build a paid time off policy that will keep them happy (and you headache-free)?
The goal is to create a policy that's simple, easy to use, and flexible.
Continue reading to learn how to build a paid time off policy that works for everyone in your business.
What is PTO and how does it work?
Paid Time Off (PTO) is an employee benefit that allows employees to take paid leave for personal reasons. PTO can be used for vacation, illness, bereavement, military service, jury duty, and many other reasons.
The most common form of PTO in the U.S. is called "vacation" or "personal days." Vacations typically last two weeks per year, but they may vary depending on company culture. Personal days usually last from 1–2 days up to 10 days. Some companies offer unlimited personal days as well.
What is accrued time off?
Accrued time off refers to all unused vacation, holiday, and personal days earned before leaving the job. Accrual occurs over time, and most companies place a cap per week, month, or pay period. There's usually an annual cap per fiscal year.
For example, a business may allow a new employee to accrue up to 10 days of PTO per year. Then, employees with the company over five years may accrue up to 25 PTO per year (roughly 7.69 hours per pay period).
What are the different types of leave?
There are various forms of PTO companies offer to employees. This list isn't all-inclusive but provides an idea of what you can include in your PTO policy:
Employees who become ill or injured while working can use these days to recover without losing pay. Most states require employers to grant this type of PTO to full-time employees.
Many countries recognize active members of the armed forces as being entitled to special treatment under employment laws. In the United States, however, only federal law recognizes military leave. The Family Medical Leave Act requires certain employers to grant unpaid leave to eligible employees who must serve in the Armed Forces.
Jury duty leave
If you live in a state where jurors must attend court sessions, you might qualify for jury duty leave. You should check with your local government about whether there is a requirement to report to court.
When family members die unexpectedly, people need time away from work to grieve. Employers generally cover this kind of leave through private insurance programs.
Companies sometimes add holidays to their PTO packages so that everyone has something to look forward to each year.
Many women choose not to return to work immediately following childbirth. Instead, they stay home until their child reaches school age. While maternity leave varies widely across different industries, most mothers receive six weeks of full salary plus medical coverage upon returning to work.
Personal time refers to unpaid time off taken during nonworking hours such as weekends, holidays, birthdays, etc. Some employers allow personal time off without requiring any documentation. Others will ask employees to provide proof of illness if they want to take personal time off.
Benefits of a paid time off plan
A paid time off policy provides flexibility and security for employees. They know precisely how much time they're entitled to and when they can expect to get it. Having a clear understanding of how they earn and spend their time helps reduce confusion and misunderstanding among coworkers.
With a paid time off policy, it's easier for managers to monitor productivity levels and identify potential problem areas.
A good PTO policy will help:
Reduce absenteeism by encouraging more workers to stay home if they're ill.
Increase productivity because it gives employees more control over their own schedules.
Improve morale among staff members since everyone knows what's expected of them.
Help retain top talent by giving employees greater freedom to manage their lives outside of work.
Allow better leave management to ensure available budget and resources remain aligned
There are also potential disadvantages to having a bad PTO policy. For example, you may find you're paying more money than necessary on health insurance coverage. And if you're not careful, you may have too many employees taking time off at once, leaving your restaurant, hotel, or clinic under duress.
How to create a PTO policy
It's time to develop your PTO policy. Use these five steps to get started:
1. Determine your needs
Do you need flexible scheduling options? Are there specific types of leave you'd like to offer? How many different kinds of leaves should you provide? Is it important to give your employees access to banked leave? If so, how long does this leave last? Will you track employee use of these policies?
2. Define the rules
Who gets to decide when and where each type of leave applies? Does every worker qualify for the same amount of leave per year? Can you grant partial credit toward future years' leave balances?
3. Decide on an amount of leave per year
This number depends on several factors, your including company size, industry, and location. But generally speaking, most organizations recommend between four and eight weeks of annual leave per person. So a typical full-time salaried employee would receive anywhere from 56 to 112 calendar days of paid leave annually.
4. Set up different types of leaves
There are two main categories of paid leave: vacation and sickness/personal days. Each category offers its own set of rules regarding eligibility, accrual, usage, and carryover. Make sure to establish the differences.
You might even want to include provisions for unpaid leaves of absence (i.e., unexcused absences and days off after using up allotment).
5. Track employee use
Once you decide on the details of your new policy, determine how you'll track employee's paid leave usage. For example, you can use software to track time, schedules, and paid time off. Then compare actual use against expectations, and adjust accordingly.
PTO best practices
There's no single right way to implement a paid time off policy. But several factors influence the success of any given approach. Here are a few tips:
1. Make it easy to use
When creating a PTO policy, make sure it's as simple as possible for workers to access their allotted days of leave. This means having clear guidelines about what types of leaves are available, who needs approval before taking leave, and where they should go to request additional time off.
2. Be flexible
If you want to accommodate changes in business conditions, consider allowing some flexibility with your PTO schedule. For example, allowing employees to extend their leave beyond the standard length. Or allowing workers to take days off to celebrate religious or cultural holidays.
3. Keep track of usage
Tracking leave balances makes managing your budget easier and ensures no one's going over their allotment. This is easier to do when you use software to track in real-time and automate report generation.
4. Make sure to include PTO for various circumstances
If you're offering unlimited PTO, remember to include things like bereavement leave, military service, and other special circumstances. It might sound obvious, but these details matter because they help prevent burnout among those who really need the time off.
5. Consider adding perks
Add incentives to encourage employees to stay healthy while using up their PTO. Some companies offer gym memberships, free massages, and even discounts on coffee shops. These perks can motivate workers to stick around longer than expected.
Speaking of health, consider making PTO mandatory to ensure your workaholic employees don't burn out.
6. Provide training
If this is your first PTO policy, provide plenty of guidance to managers and employees along the way. Conduct training sessions to teach new hires how to fill out forms, manage their schedules, and communicate effectively with management about taking time off.
7. Create a culture of trust
Employees appreciate knowing management trusts them enough to set aside days for rest and relaxation. So, make sure your company doesn't hold back information about its policies. Let workers know why they deserve this time away and explain how long they can expect to spend recovering.
PTO laws and compliance
Most states now mandate at least 12 weeks of paid leave for certain medical situations, which is required under the Family and Medical Leave Act (FMLA). Employees are eligible after working with an employer for 12 months, but the employer must also be an Applicable Large Employer (ALE).
An ALE is an employer with at least 50 full-time employees (including full-time equivalent or FTE workers). Some states require additional benefits like job protection and health insurance coverage. The Affordable Care Act, or ACA, regulates what's determined as "essential health benefits."
Each state offers its own requirements for paid sick leave. For instance, Connecticut was the first to require private-sector employers to offer paid sick leave to workers (back in 2011). California followed suit a few years later with the Healthy Workplace, Healthy Families Act of 2014.
What happens to PTO during the COVID-19 pandemic?
After the Coronovirus hit, Congress stepped in by enacting emergency legislation to temporarily grant Americans access to paid time off due to the virus. Some states chose to broaden the access to paid sick leave, but none were permanent.
The Families First Coronavirus Response Act mandates that specific employers offer paid sick leave to workers who have to quarantine or self-isolate themselves or family members. Or when they lack childcare when a school is shut down because of COVID-19.
Employers with under 50 employees are excluded from the mandate.
An example of how the FFCRA works:
Full-time employees get 80 hours of sick leave and part-time workers receive paid time off equal to their scheduled or normal work hours. Employers can't require workers to use other PTO before granting them paid sick leave under FFCRA.
Sample PTO policy for small businesses
Here's a sample paid time off policy:
Our company provides each full-time employee with up to 40 hours per year of paid time off. These days may not accumulate toward annual vacations; instead, they count only if taken before or after regular working hours. Sickness days do not carry over between calendar quarters.
Full-time employees earn one hour of paid time off for every 30 hours worked. Part-time workers earn half this amount. Hours accrued during holidays, public holidays, and other special events are excluded from calculations. The first 10 hours earned annually are exempt from accruals. Any remaining hours must be used within six months of earning them. If an employee takes unpaid time off without using it, they lose their exemption status.
Use of PTO
Employees may use accumulated paid time off as follows:
Vacation: Up to four weeks per year
Personal days: two weeks per year
Holidays: three weeks per year
Public holidays: five weeks per year
Other events: two weeks per year
New hires receive no paid time off. After six months, part-timers receive four weeks of paid time off. Full-time employees receive eight weeks of paid time off after one year of employment. You can set it up similar to this:
With this system, you set aside money specifically designated for paid time off. Once an employee uses all of their allotted time, the balance rolls over into subsequent years. To avoid paying out twice, require employees to sign a waiver stating they won't claim additional PTO until after exhausting current allotments.
Always have the right coverage
Paid time off policies vary widely among employers. Some companies provide only limited or partial coverage, while others cover everything except holiday pay. Regardless of the specifics, make sure your PTO policy is straightforward and considers various life situations.
If you're in the process of implementing a PTO program, do your research to design a comprehensive plan that meets your business goals.