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Should you offer Vacation or Paid Time Off?

Aug 31, 2018 | Benefits, HR Regulations, Human Resources

For the past 50-75 years, employers offered traditional leave benefits to employees.  That is, they provided distinct paid time off benefits – often having separate paid vacation, sick leave, bereavement leave and other personal day policies.  Offering separate policies meant someone had to accrue, track and account for each benefit individually as well.

However, in the past two decades, many companies moved to a more flexible Paid Time Off or “PTO” program.  In fact World at Work, an association of human resource professionals, reported that 43% of companies offered PTO in 2016, up from 28 percent in 2002.  This type of plan incorporates the traditional policies for vacation, sick and personal days into one all-inclusive PTO plan.  The accrual and tracking for these plans is combined, which reduces the chore of accounting for each separately.

Most employers still offer separate policies for statutorily mandated leave such as jury duty, witness and voting leave.  Also, some optional benefits, including paid holidays and bereavement leave may be offered and tracked separately from PTO.

The benefit of combined PTO versus separate vacation, sick and personal leave plans remains a source of debate and research.  To help you decide whether a combined PTO plan makes sense, here are advantages and disadvantages to consider.

Advantages of a Paid Time Off Policy (PTO):

  • With traditional plans, sick days usually don’t carry over from year-to-year.  Rolling sick days into a PTO bucket removes the employee incentive to fib about being ill or having a doctor’s appointment in order to maximize use of the annual sick-day allotment.  This results in more transparency in the employer/employee relationship.
  • Research indicates that incorporating a PTO policy results in employees taking more vacation time and less sick days, on average.  You’ll benefit in two ways.
    • Typically, you will get more advance notice about scheduled vacations, giving you more time to plan for adequate coverage.
    • Mental health professionals generally agree that employees return to work more refreshed and productive following vacation leave.  The same results do not hold true for employees utilizing sick days for time off.
  • Employees generally value the flexibility that PTO provides.
  • You only track PTO hours, as opposed to separately tracking vacation, sick and personal days.  This reduces the administrative burden.

Disadvantages of a Paid Time Off Policy (PTO):

  • Employees are more likely to use all of their PTO.  They may not have used all of their sick or personal days with separate policies.
  • Employees tend to save all of their PTO time for vacations and come to work when they are sick.  This may unnecessarily spread illness to other employees.
  • In some states, all earned PTO must be paid out upon separation of employment.
    • For example, in California, employers are required to pay out all accrued vacation upon separation.  However, they are not required to pay out all accrued, unused sick leave.

The HR Pros at HR Support Center can answer questions regarding PTO policies as they apply to your specific location.  Here’s a Paid Time Off Policy Template you can adapt to your organization, with several options to consider.

Implementing a PTO Policy