Paid time off is one of the most common and desirable benefits a company can offer. Small businesses can attract top talent with a competitive PTO policy. Read on for some insight into different types and how to administer it.
What Is Paid Time Off?
Paid Time Off (PTO) is the maximum number of hours or days that an employee can be absent from work and receive their full salary. It can refer to:
- Vacation time: Time away for traveling or vacations
- Personal time: Time away for life emergencies, personal responsibilities, religious observance, jury duty, bereavement, volunteer work, or mental health breaks
- Sick time: Time away for personal illness, doctor visits, hospitalization, or caring for unwell family members
Administration of PTO policies often includes criteria such as:
- Eligibility based on years of employment, experience, or salary/hourly status
- Yearly allotments
- Accrual calculations
- Procedures for requests and approvals
- Rules governing allowances and restrictions
- Policies for unused time
- Compliance with federal and state labor laws
Benefits of Offering Paid Time Off
A survey of 1,092 job seekers found that “employers who are stingy with annual leave might risk driving away talent. Jobs that only offer the minimum amount of annual leave allowance put off 65.5% of applicants – the most common red flag on job adverts for applicants.”
Though the definition of “minimum” may be up for debate, the message is clear: job seekers – especially younger workers – seek better work-life balance facilitated by generous leave policies that are easy to understand and access. Building a culture of trust and generosity can pay dividends in employee morale and recruiting. It reduces call-outs, improves productivity and retention, and may encourage referrals from existing workers who feel valued for their individual talents and needs.
Types of PTO Policies
According to SHRM, 95 percent of companies offer some kind of paid time off. What that looks like isn’t universal, however. There are pros and cons to each type of PTO policy:
Traditional Accrual Method
The most common PTO policies follow an accrual approach. Each employee is designated a certain number of days annually. For example, a new employee may receive 15 vacation days, 10 sick days, and 5 personal days. They may receive additional time on top of the original allotment, calculated in hours or days based on hours or days worked. Accrual can increase retention because the longest-tenured employees benefit most from PTO.
Traditional policies allow for certainty in both calculation and usage. Timekeeping software like WorkforceHub lets each employee track their allowed time off and allows for accruals, requests, and approvals within the software. This approach can demand more of administrators, who must judge and approve leave requests, and employees may feel micromanaged. Emergencies and unexpected life events make up a not-insignificant portion of time-off requests, which can be frustrating and difficult to get approved quickly.
Flexible Method
A flexible policy may also rely on an accrual method, but it eliminates categories and designates a certain number of days off to every employee, to be used at their discretion for whatever they need. For example, under company policy, every employee receives 30 days, with or without the option to accrue additional time.
Flexible PTO reduces some of the administrative burden of having to approve time off in the appropriate category and demonstrates trust in employees’ autonomy. On the other hand, without designated sick time, employees may come to work when ill to save up days for more exciting activities.
Unlimited PTO
Large tech companies are known for their unlimited PTO policies, where employees can take off as much time as they want or need for any reason – as long as it doesn’t negatively affect their productivity. Most unlimited PTO policies still require a request-and-approval process, but they eliminate accrual metrics and allow employees more privacy and autonomy. Sick employees are more likely to stay home and recover, and they can handle emergencies with less stress and anxiety about work.
Unlimited policies cut down on management but run the risk of being exploited by employees who see them as more generous than they’re meant to be.
Use It or Lose It
Although some states and municipalities have laws governing rollover paid time off, no federal law requires it. While you must ensure your policy is compliant, some companies’ PTO policies follow the use-it-or-lose-it model: employees must use their allocated PTO within a set period or risk losing it. This can require some extra administration to remind employees of their status and help them use their allotted time. This policy can encourage employees to take time away from work to reduce burnout and achieve better work-life balance. Employees who chronically save PTO are more likely to feel overworked and stressed, which can negatively impact their work and relationships with colleagues, friends, and family.
Whatever approach your company takes to PTO, your culture should treat time away from work as necessary for employees’ mental and physical health.
- Implement WorkforceHub to make it easy to track available time and request time off.
- Encourage employees to turn off their computers and avoid working while using their allotted leave.
- Encourage supervisors to show empathy and avoid judging the reasons employees request time off.
Crafting a generous and well-administered PTO policy can help you retain your best employees and attract top talent in the future. Try WorkforceHub for free to start tracking paid time off more effectively.
