Updated: Nov 27, 2022
Every business with W2 employees on their payroll needs a written PTO policy. It's a benefit to both the employees and employers in many ways. A good PTO policy ensures your employees have paid time to take off at their discretion, whether it be for sickness, doctor appointments, parent-teacher conferences, or that much-needed vacation to prevent burnout. It also helps the employer prevent unscheduled absences and unnecessary days off.
But not all PTO policies are created equal. The specifics of your PTO policy can make or break the company during busy seasons or the holidays. Keep reading for helpful tips on creating or editing your PTO policy.
Lump Sum vs. Accrual
Let's say you give two (2) weeks of PTO per year for the first year of employment. Do you offer that time in one lump sum to be used at any point during the year, or do you make the employees accrue the time each pay period? There are pros and cons for either option.
A lump sum is easy for the employer to allocate and track, and it gives the employee the freedom to use their time immediately. But what if the employee uses their full two weeks in the first month of their employment, and then finds another job? It would seem that the company was taken for granted, right? Or, what if the employee takes a two-week vacation at the beginning of the year, but then gets sick at the end of the year and has no PTO leftover? Now the employee is left without a paycheck during the holidays.
Alternatively, an accrual-based PTO system is much harder to track, especially if you have more than a few employees. However, making employees accrue time can be beneficial to the company in that you won't have the situation where you might pay an employee for two weeks of vacation just for them to jump ship the following week. It also ensures that employees use their time more wisely, knowing that they have to work x number of hours before they earn time again.
Rollover vs. Use it or Lose It
Unless your company is located in a state that treats PTO as a form of earned wages (like California), you'll want to consider whether employees can rollover their unused PTO or not. Again, there are pros and cons to both.
Rollover is, of course, favored by employees. If they were not able to use all their time off due to workload or financial restraints, a rollover policy ensures that the employee is able to use their PTO in the following year instead. Unfortunately, this option can be costly to the employer if they pay out PTO upon voluntary termination. We've all seen those few employees who simply refuse to take time off.
Use-it-or-lose it policies might be less costly for employers, but there are some setbacks to this option as well. While the company can use this approach to encourage employees to take time off, there are always employees who wait until the last minute and then cause issues for the business by needing to use their time during a peak season or before the end of the year, i.e., during the holidays.
Calendar Year vs. Anniversary Date
A third variable to consider is whether your PTO allotment will be on a calendar year basis or calculated off the employee's anniversary date.
Calendar year is the easier option when it comes to tracking employee's time. However, there is a major drawback to this method: every employee companywide will accrue time at the same rate (if using the accrual method) and/or be trying to use their time off by the end of the year (if using the use-it-or-lose-it method), causing issues like staffing shortages, seniority or first-come-first-serve arguments, and overwhelming your payroll and benefits manager.
If you have more than a handful of employees, the better option might be to use anniversary dates for PTO allotment. Though it's a bit harder to manage, this will ensure that every employee accrues PTO at different times, preventing everyone from trying to use time off at all at once, especially at the end of the year.
Creating or Evaluating Your PTO Policy
Now that you have more information on types of PTO policies and how they can potentially affect your business, is your PTO policy ready for the holidays?
Do you need to create a new policy or does your current policy need some work? No worries! Contact us for assistance with all your policy needs!