Paid Time Off (PTO)
Table of Contents
Table of Contents
What Is Paid Time Off (PTO)?
Paid time off is a benefit that involves paying an employee for the time they are not working. It is often provided by employers for employees to use as they see fit. PTO is typically measured in hours and can be characterized in a variety of ways: sickness, vacation, or personal time.
Advantages of Offering Paid Time Off
Offering PTO to employees shows that the employer truly cares about their well-being and, ultimately, the future of the business. Research shows that employees rate time off as the second most important benefit, (health insurance being the first). Here are some of the many benefits of PTO.
- Better work-life balance. The biggest and probably most well-known advantage of PTO is work-life balance, which contributes to health, wellbeing, lack of burnout, etc. It also encourages employees to take time away from work so they don’t miss out on activities at home. Employees who aren’t focused solely on work are better able to focus on work while at work.
- Reduction in absenteeism. An employer that offers PTO to its employees decreases absenteeism. Research shows that employers who offer PTO have seen a 6% to 8% decrease in employees who miss work without giving notice. This saves an employer time and money, as they can plan for, instead of being surprised by, absences.
- Reduced turnover. One study suggests that upwards of 77% of employees are experiencing symptoms of burnout. A primary contributor to these staggering numbers? Lack of quality time off. Fewer breaks and longer stretches of work are leading employees to burn out faster than ever. This naturally results in high turnover as employees scramble to find a place where they can strike a better work-life balance.
- Increased productivity. Employees who go without breaks for weeks or months can struggle to focus, are less motivated, and aren’t nearly as productive. PTO helps a company continue to be productive by giving an employee the necessary time to recharge mentally and physically.
- Attract talented employees. Businesswire surveyed Americans online and asked them to list their top desires when it comes to work perks. The results of that survey showed that a generous PTO plan was the number one most coveted non-insurance-related employer benefit. If you’re in the market for talented individuals and are trying to convince them to come and work for you, a well-developed PTO plan will give you a great advantage.
- Create an environment of trust. When employees work for companies that offer little to no flexibility when it comes to PTO, employees do not feel trusted. Instead, they feel like they’re being treated like a child who needs to ask for a hall pass from their teacher just so they can use the bathroom. There are definitely limits to any plan and no employee should be able to abuse the policies you have in place. But if you start from a place of trust and empowerment, employees will return and reward you for that trust by working hard and staying engaged.
Disadvantages of Offering Paid Time Off
Like every other benefit, there can be a downside to PTO.
- Sick employees coming to work. One potential downside of PTO is that some employees see it as “vacation” time too precious to waste on a sick day, so they “suck it up” and come to work while they are sick. Other employees may become ill as well, not feel comfortable working around the sick employee, or feel like they, too, should come to work when they are sick. This is something that an employer should be aware of and look to balance. Having clear expectations with employees can help with this issue.
- More time-off requests. Employees are more likely to take time off if PTO is available, as that is what it is intended for. However, this can also impact scheduling and staffing needs, ultimately affecting a company’s ability to operate well if not enough employees are working. One way to combat this is to require that vacation leave or personal time is requested a certain number of days in advance.
- PTO payout. Some companies offer a PTO payout, in which an employee gets paid for any remaining earned PTO when they exit a company. While this is not a bad policy, this can be a large sum of money if you allow PTO to accumulate, or rollover, and the employee doesn’t use it.
- PTO usage prior to termination. Some employees use all of their PTO when they know they will be leaving a job. For instance, they may request two weeks of PTO and quit at the end of that time. While this is fair usage, the employee ends up getting paid for an amount of time while no longer doing any kind of work for the employer.
Common Types of Paid Time Off
Companies offer a variety of types of PTO. Here are details about the most common. Less common types include bereavement, jury duty, military duty, and sabbaticals.
The most basic form of PTO is vacation. Employees need the time to disconnect and recharge. Planning a trip and taking a break from work can be very beneficial for the employee and the employer.
Some companies separate PTO and sick days into different banks of time; some do not. However you choose to do it, sick leave should be offered to employees so that they are encouraged to stay at home when they are sick, which benefits everyone.
Many companies offer personal time as distinct from vacation or sick leave. Sometimes employees simply need time off to relax or take care of personal matters. This might require travel to another city or state, or it might mean the employee sticks close to home. In any case, this type of PTO falls under the category of “personal time.”
This type of leave allows employees to take time to care for family, whether that is caring for a newborn, aging parents, or someone who is ill. Many companies are required to provide this type of leave through the Family Medical Leave Act.
At some companies, time off for holidays is a given: The whole staff takes the day off, and no one is required to formally request PTO. But for essential workers in the medical field, retail, and grocery stores, holidays may be something they need to request time off for in advance.
Different Types of PTO Policy
You can implement your PTO policy in a variety of ways, and each of them has pros and cons. There are three common styles of PTO policies, and we’ll look at each. However, no matter how PTO is offered, how you divide it is also an important decision.
How many buckets does your PTO fall into? Is there one total number of PTO hours that is used for vacation, sick, personal, and every other sort of leave? Or is that time divided by purpose and tracked separately?
Advantages and disadvantages include:
- If sick leave is folded into PTO, employees may prefer to come to work sick and preserve that time for vacation or other uses.
- If sick leave is folded into PTO, employees with serious illness will lack time to take a vacation, which is also important to productivity and work/life balance.
- Tracking PTO separately adds substantially to administrative time and complexity.
Unlimited PTO is becoming more common, especially within the tech industry. With unlimited PTO, employees can take time off whenever they want, as often as they want. It offers more flexibility and encourages employees to take time off whenever it is needed. However, unlimited PTO can be a bit misleading, as employees might feel more inclined to take less time off as they are unsure what is an appropriate amount of time off. Employees with unlimited PTO may be afraid of looking lazy or uncommitted to the job. This leads to employees not taking time off, which affects their morale and health.
The most common kind of PTO is the traditional accrual policy. The annual PTO given to an employee is divided by the number of pay periods in the year, so that it slowly accumulates, creating a total number of hours of PTO the employee has available to use.
This can be beneficial for the employees in that their PTO use is spread throughout the year. However, the employee might feel stymied by the slow accumulation and discouraged about having to wait to use their PTO. They might decide to wait until it has built up at the end of the year to use all of it at once, which may be challenging for the company.
Here, the company grants a certain number of PTO days at the beginning of the year, creating a “bank” of time employees can use as needed, without waiting for it to accrue. It also creates a sense of trust and responsibility within a company, and it solves the dilemma in which employees save the PTO to use it all at once. However, it can cause problems if you offer a PTO payout; an employee may quit just past their anniversary date so they can get a PTO payout.
How to Craft Your Own Policy
A clearly written PTO policy in the company handbook is essential.
Step 1: Gather Feedback
If you are implementing a new PTO policy, ask employees what is important to them and what would help them be the best employees possible.
Step 2: Set Parameters
Next, set clear parameters on the reasons someone can request PTO, what kind of PTO is offered, how many days in advance should PTO be requested, and the amount of PTO that is offered.
Step 3: Obtain Employee Consent
Once a policy has been written and the guidelines have been set, it is sent to all employees. Usually, there is a written form for each employee to acknowledge their understanding of the company PTO policy (new hires, of course, do this with their receipt of the handbook).
Step 4: Choose a PTO Management Software
This step isn’t strictly necessary, but it will make your life much easier. Trying to track time off manually using spreadsheets quickly becomes tedious for everyone involved. Instead of going the manual route, consider using a PTO management software that allows employees, management, and HR to easily record and view PTO.
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Tanner has over 4 years of HR professional experience in various fields of HR. He has experience in hiring, recruiting, employment law, unemployment, onboarding, outboarding, and training to name a few. Most of his experience comes from working in the Professional Employer and Staffing Industries. He has a passion for putting people in the best position to succeed and really tries to understand the different backgrounds people come from.
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