HR Mavericks

Eddy’s HR Mavericks Encyclopedia

Lump-Sum PTO Policy
Are you facing challenges administering all the different kinds of paid time off: sick, vacation, holidays, flex time, and more? Lump-sum PTO can streamline administration and improve employee morale.

What Is a Lump-Sum PTO Policy?

Lump-sum paid time off (PTO), also known as a PTO bank, is when an organization provides its employees a set number of paid time off days per year—typically at once—that either rolls over from year to year or expires at the end of the year. This bank of hours may cover all the most common types of leave, such as sick days, vacation, holidays, and more, depending on your policy.

Should Companies Offer Lump-Sum PTO?

Deciding to use a lump-sum PTO policy is contingent upon several factors; however, one of the most important is whether your employee satisfaction will be negatively or positively impacted, which can ultimately impact your organization’s bottom line. Consider the following when deciding whether your organization should adopt a lump-sum PTO strategy.
  1. Consider the needs of your teams. Lump-sum PTO may work perfectly for one team but not for the others.
  2. Look at your industry and what your competitors are doing/offering.
  3. Review your current policy.
  4. Consider surveying your employees as to their preference.

Pros of Offering a Lump-Sum PTO Policy

Paid time off is an important benefit for your employees, and as with any benefit offerings, there are pros and cons. Let's first examine the pros of offering lump-sum PTO.
  • Provides privacy. Unlike sick time, this type of PTO allows employees to take time off without noting what the time requested is for.
  • Ease of administration. Lump-sum PTO is less challenging to administer, as there’s only one balance to track.
  • Cost. Because administration time is drastically reduced, lump-sum PTO is more cost-efficient.
  • Employees may like it because it provides flexibility; they can use the time as they see fit.

Cons of Offering Lump-Sum PTO

Lump-sum PTO does have its disadvantages.
  • Separation. Employees who are resigning or retiring are motivated to use their PTO before they go; they could leave responsibilities unfulfilled.
  • Employees may not like it because PTO can be viewed as using vacation time when they are sick.

How Does Lump-Sum PTO Work?

Lump-sum PTO is one of the most commonly used PTO strategies. A 2021 survey on paid leave found that 44% of organizations surveyed used a lump-sum PTO strategy. How it works depends on your organization’s policies.

Step 1: Decision

Deciding on which PTO strategy to use is contingent upon a number of factors. Consider why your organization would adopt a lump-sum PTO practice. Are you attempting to increase flexibility, ease the administration process, reduce absenteeism, or improve employee morale? These are all incentives as to why one would consider such a strategy.

Step 2: Days/Hours Allotted

Normally this type of time off combines all the days that your organization would normally provide employees in one lump sum. For example, holidays, vacation, sick, flex days are pooled together.

Step 3: Years of Service

Many organizations design the hours/days offered based on the employee’s years of service or position. For example, a more senior level employee such as the organization’s chief financial officer may receive 40 additional hours in their PTO bank as compared to newer or less demanding positions.

Step 4: Administration

Be sure to consider how you will administer your policy. One of the most important factors to consider is how generous your organization will be. Will employees be able to carry over days/hours and if so, how much? By tracking the available and used time, you are able to reduce workplace disruptions and avoid any decrease in production. You can track lump sum PTO by paper, spreadsheets, or a human capital management system such as Eddy.

Best Practices for Companies Offering Lump-Sum PTO

A great lump-sum PTO policy is beneficial to both the employee and the employer, and to ensure this, you’ll want to follow a few best practices.

Attractive

Be sure that your lump-sum PTO strategy is attractive. For example, the strategy should allow employees to use it for various reasons, such as non-organizationally-recognized holidays or mental health.

Clarity

Make sure your employees clearly understand your policy and its boundaries. Present it in a variety of ways throughout the year.
Though there are no federal mandates, if your policy allows for employees to use PTO for sick leave, be sure to identify and comply with any applicable state and local jurisdictions. Here is one resource for locating paid sick leave requirements by both state and municipality.

Use PTO

It is a best practice to encourage your employees to use their PTO. Often, employees feel guilty about requesting time off, so make sure leadership models taking PTO and express the importance of work/life balance.
Topics
Wendy N. Kelly, MSHRM, PHR, SHRM-CP

Wendy N. Kelly, MSHRM, PHR, SHRM-CP

Wendy is an HR professional with over 10 years of HR experience in education and health care, both in the private and non-profit sector. She is the owner of KHRServices, a full service HR management agency. She is also SHRM and HRCI certified, serves as a HRCI Ambassador, and voted 2021 Most Inclusive HR Influencer.
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Frequently asked questions
Other Related Terms
Benefits Administration
Carryover (PTO)
Commuter Benefits
Company Car
Competitive Pay
Dental Insurance Benefit
Disability Insurance
Earned Wage Access (EWA)
Employee Benefits
Employee Incentives
Employee Relocation
Employee Rewards
Employee Stock Ownership Plan (ESOP)
Employee Swag
Employee/Employer Flexibility
Equity Compensation
Flexible Spending Account (FSA)
Floating Holidays
Golden Handcuffs
Group Incentive Plan
Health Reimbursement Account (HRA)
Health Savings Account (HSA)
Life Insurance Policy Benefit
Open Enrollment
PTO Accrual
PTO Accrual Cap
PTO Payout
Paid Holidays
Paid Vacation
Pension
Restricted Stock Units (RSU)
Retirement Benefits
Roth 401k
Section 125 Cafeteria Plan
Special Enrollment Periods
Spousal Surcharge
Traditional 401k
Tuition Reimbursement
Unlimited PTO
Vesting
Vision Insurance Benefits
Workers' Compensation
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