Articles

Originally published by New York Law Journal – online November 2, 2018 and in print November 5, 2018.

Companies of all shapes, sizes and industries all across the country have been deciding to ditch their traditional vacation and sick time policies in favor of an integrated Paid-Time-Off (PTO) system.  Implementing a PTO system can have numerous advantages for employers and their businesses, saving you time, money and energy in managing your staff’s time off benefits.  With the current trend moving away from traditional leave systems, now might be a good time to ask yourself: is PTO right for your business?

Traditional Leave Policies

Traditionally, employees are granted an array of different types of time off, including vacation, sick, and personal days.  For example, under the traditional system, an employer might offer employees 10 paid holidays, a week of paid vacation, three personal days, and five sick leave days per year.  The type of leave dictates how those days are to be used. PTO, however, permits more flexibility and allows the employee to use those days however he or she wishes.   Not only do most employees prefer it, but it reduces administrative burden on the employer.  Everyone wins.

So, What is PTO?

PTO is a single bank of days from which employees can draw time off for sick days, vacations, doctor’s appointments, child care snafus, personal days, etc.  It is up to the employee to use the days as he or she wishes or needs.  Under a PTO system, there is no need for employees to justify their earned time off – they simply take their earned time and use it as they will.

Pros of Offering PTO

Attract Top-Talent.

A PTO system makes your business more attractive to prospective employees by increasing the number of days they can take off for vacation and personal days if they are rarely sick.  A major complaint by employees regarding traditional sick time is it only rewards those who are sick – healthy employees get no benefits.  PTO on the other hand allows an employee who never calls in sick to use the days that would otherwise be allotted for sick time to do other things, like take a personal day or extra few days of vacation.  Who doesn’t love that?

Deter the Over-Use of Calling Out.

Unexpected call-outs are costly for employers when you consider lost productivity due to suboptimal staffing and possible overtime costs paid to an employee who is called at the last minute to fill in for the calling out employee.  Not to mention the morale issues that come along with calling someone in to take on the work-load of another or simply raising the work demands for the employees who come in as scheduled.  Call-outs are never fun for those left holding the bag but if it is the only way to get every possible day off, that is exactly what some will employees will do.

Not only does an effective PTO system reward hard-working and devoted employees who never take a sick day, it also deters the abusive and unnecessary use of sick days.  The fear that I won’t get my full number of days off if I don’t call I sick is gone.    While the number of days available to call-out might remain the same, the “always sick” employee will be forced with the inevitable choice – call in sick and forfeit my vacation or work through my minor sniffles and take that weeks’ vacation to Mexico in the fall – decisions, decisions.  Knowing that a sick day might eat into their vacation time might be just the sort of deterrent these employees need.

Be mindful, however, that this might require you as an employer to address employees who come to work on their deathbed.  While they might not want to call out and use a day of PTO for their illness, it’s not worth them getting the whole office sick.  Take a stand and send him or her home if they are a risk to the rest of your employees or yourself.

Promote a Better Work-Life Balance.

A PTO system also allows employees to miss work for things that are important to them without having to feel guilty about taking time off.  Taking care of loved ones, going to school events, and enjoying an occasional day off just for fun are all allowed.  Your bottom line will be helped because nothing helps a business like happy, well-rested employees.

Avoid Playing the Hall Monitor.

Employers who offer vacation, personal and sick days have three separate banks of accruals they need to manage, monitor and maintain.  Not only do these employers have to keep track of how many paid days off an employee has left but they have to know what “type” of absence it is.  The employer also somehow has to make sure each day off is used for the allowed reason.  Essentially, they have to play hall monitor.  Are they sick?  Is their child sick?  Did their babysitter cancel?  Car break-down?  Does any of this really matter?  It’s time consuming and beyond all else – exhausting!

Not only is managing different banks of accruals a waste of management’s time, it presents an impossible task: determining which of your employees is abusing their time/ lying.  While an employer can require employees to turn in a doctor’s note when they are off for more than three consecutive days and cite sickness as the reason, they cannot require an employee to submit a note every single time they take a sick day.  An employer with a doctor’s note policy must also be careful to apply the policy uniformly and avoid asking questions that run afoul of the Americans With Disabilities Act (ADA) and state and federal privacy laws.  With so much risk at stake, why take the chance?

Things to Consider Before Making the Switch

 Paying Out Unused PTO Upon Resignation or Termination.

A possible down-side for employers is the possibility an employee banks a large quantity of PTO days and leaves the company.  Certain states require employers to pay out accrued but unused PTO when an employee leaves.  Other states require you to do so only when you yourself establish such a policy, and some don’t seem to care one way or another. 

Buying Back Unused PTO.

Something to consider when instituting a PTO policy is whether or not you offer employees a “buy-back” at the end of the year.  Instead of having employees carry over unused days into a new year, some employers chose to allow their employees to receive pay in exchange for those days, essentially resulting in a year-end bonus for days not taken.  It is not recommended that employers buy back unused PTO days at 100 percent of an employee’s wage as productivity is helped when employees have time off to recharge their batteries.  However, buying back at 50 or 75 percent of an employee’s regular wage is a win-win: the employer saves money and the employee walks away with some extra year-end spending money but usually choses to use some of their time off during the year.

Increasing the Number of Days Employees Take Off.

Offering a PTO policy might also lead to your employees taking off more time than usual, which may or may not be a bad thing.  Studies have long shown that the ability to take time off leads to a more motivated workforce. Some of the larger tech companies in the U.S. have even begun offering “unlimited PTO,” and, contrary to popular belief, their employees are actually taking less time off than normal.  While offering unlimited PTO is an extreme, it’s clear there is a growing trend towards offering PTO instead of traditional vacation and sick time.

Conclusion

While there are advantages to both leave options, and compelling arguments on either side, the trend is in favor of PTO. PTO essentially gives employees carte blanche over how they use their time off, leaving employers time to worry about more important things.

Are you ready to make the switch?  Think about it.  When you’re ready, seek competent counsel in your state to make sure your plan will work for your business.