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Human Capital

Stop Counting Vacation Days: Good or Bad Idea?



Written by: Jennifer Specter

While Richard Branson recently announced that the Virgin offices would be moving to an unlimited vacation time “non-policy”, that may not be a realistic option for smaller organizations. Your business may have a tougher time with people taking time off whenever they want, as you have a limited number of employees to deliver the service your clients have come to expect. However, one of your most compelling benefits to your team and potential recruits is the flexibility you can provide to them through a paid time off (PTO) program.

Paid time off (PTO) provides employees with paid time away from work that can be used for vacation, personal time, personal illness, time off to care for dependents, etc. It is designed to take the place of separate sick leave, personal time and vacation policies.

Some of the benefits of a single paid time-off policy include enhanced employee morale with more flexibility and responsibility because employees are accountable and responsible for managing their own PTO hours. There is no need for you or the employee to determine why the time off is necessary. If an employee needs time off for a trip to Europe, a doctor’s appointment, or to attend a child’s field trip, all are covered by the same policy and are drawn from the same bank of days. Also, many firms report an increase in productivity with fewer unscheduled absences with a PTO policy versus a sick leave policy. When you have a separate sick day policy, healthy employees may feel that those sick days are owed to them and may create a situation to use them.

Some key factors to consider when developing your PTO policy include whether or not you will grant the whole bank of PTO hours on day one of the year or create a system where the hours are accrued (generally either by pay-cycle or monthly throughout the year). In general, the trend has been for employers to move toward accrual-based methods of giving employees access to paid time off, so as to better manage the usage of time off throughout the year, as well as avoid payout issues. In doing so, most employers will address the concern regarding making sure employees have time available early in the year by allowing for rollovers of unused amounts from the previous year. Another factor to consider is what to do with unused PTO hours. Depending on the rules of your state, you may be allowed to place a limit on the number of PTO days that can carry over to the next year. Some states like California do not recognize a “use it or lose it” policy which means that employers must allow employees to carry over unused hours from year to year. However, California does allow employers to cap the amount of PTO that an employee can accrue at any given time. Another consideration is how to manage PTO scheduling. We recommend that whenever possible, PTO should be scheduled in advance and be subject to supervisory approval so managers can balance the operational and service delivery needs of the firm with the time off preferences of the staff.

Successful implementation of a PTO program depends largely on communication. We recommend that you clearly communicate your PTO policy to your employees through team meetings and by including it in your employee handbook.

For many people in today’s workforce, flexibility is a premium benefit and many employees look at a PTO program as a way to improve their work-life balance. But regardless of which type of time-off policy your firm may have in place, paid leave is an essential employee benefit, and it can serve as a powerful recruitment and retention tool.

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