Employers offer paid time off incentive to keep the employee engaged and motivated. Nowadays, businesses seek different ways to boost the productivity of their employees.
A great way to enhance productivity is to offer paid time off to the employees.
It encourages employees to work harder and smarter for the company. PTO promotes work-life balance and or is a key element of the employee experience. Let’s deep dive into the underlying benefits and procedures of paid time off and how to implement it in the workplace.
Table of contents
- What is Paid Time Off?
- How Does It Work?
- How Much Paid-Time Off is Normal?
- How to Know About Company’s PTO Policy
- Types of PTO and How To Structure Them
- Advantages of a PTO Policy
- Disadvantages of the PTO Policy
- What to Include in PTO Policy?
- Formalize Effective PTO Policy
What is Paid Time Off?
Paid time off is a human resource policy offered to employees to take off from work for bankable hours. This is the period in which employees enjoy off working hours without compromising their compensation.
PTO policy is generally included in the employee’s handbook. After reading the policy, employees get an in-depth understanding of PTO. Moreover, many companies calculate paid time off based on the duration of the employment in the company.
How Does It Work?
PTO allows employees to take leaves and utilize them over a time period. If employees work a month, some leaves add to their leave balance. For example, for every month, an employee gets 1.5 PTO leaves. In aggregate, it makes a total of 18 leaves over a year. So basically, employees can take 18 paid hours off from their work. Sometimes, employers fix a specific number of paid time off days for specific employees.
Employers mainly use three PTO strategies, accrual, allotment and unlimited. These leaves mainly include national holidays, paid vacation, and family and sick leaves. Also, this time off does not include times when an employee is working remotely.
- Accrual PTO is a type of PTO that employees can avail over a period of time. It is often taken as a bank account, where you save and spend money.
- An allotment PTO is a set amount of days per year. It means that employees can use allotted days at the start or at the end of the year. These PTOs will not be added to the next year.
- Unlimited PTO is an unlimited period of vacations for employees. It means that employees have no limit for taking time off.
To protect the business workload and workflow, employees must request PTO 48 hours before (the time-bracket can be different for different employers). This is general practice unless the employee is sick or meets an unforeseen accident which requires only one application to get approved.
How Much Paid-Time Off is Normal?
It varies from business to business. Not every employer has the same PTO policy. Some offer leniency, while others follow strict guidelines.
U.S. companies offer paid time off after an employee reaches probation or completes other service requirements. Employees must work 90 days in the company to get vacation time off. However, exceptions are there too. On average, a private company employee receives 10 PTO days after one year of service.
It is worth noting that different sectors have different PTO requirements. For example, the manufacturing industry offers 11 paid time off days after one year of service. The financial sector provides 17 PTO days after a year. The hospitality sector offers an average of nine days after one year, and the list goes on for different sectors.
How to Know About Company’s PTO Policy
You must know the company’s PTO policy as it is important to use them. If you have just joined the company, approach the HR department and inquire about the PTO policy. Usually, the policy is mentioned in the contract or employment letter, but if you fail to find it, contact HR to seek help.
Legally, Employers are not bound to provide PTOs under US law. However, we found the top 50 companies are providing on average 20 PTOs to employees. This is part of their incentive package they offer as perks along with salary.
Types of PTO and How To Structure Them
- PTO Buckets
In the PTO bucket setup, companies divide PTO days into different categories, for example, vacation, sick and casual time off. In this setup, employees take PTOs based on their work hours. Every company has a different bucket policy; some offer more sick leaves than vacation, while others allocate more vacation over sick PTO.
- Unlimited PTO
We have heard the term ‘unlimited PTO’ for quite a while, mostly from tech companies. This PTO offers unlimited paid time off to the employees. In this type of PTO, employees have no limit on how long they can avail time off. In this policy, employees do not get compensation for idle hours while at work. This is more of a liability for employees than a benefit.
- PTO Banks, a Lump Sum Policy
Unlike PTO buckets, PTO banks offer employees a single bundle of paid time off. It doesn’t have any categories or divisions. The employees can take time off at once without mentioning the reason for taking time off. In this setup, employees take bulk leaves and utilize them for their vacations, sick or casual time off. It’s on employees how they decide to use these leaves. As mentioned earlier, the PTO policy could differ from company to company.
Advantages of a PTO Policy
PTO policies have been buzzing around in the business world for quite a while now. This time off from work is compensated by the employers, unlike vacations. PTO and vacation are slightly different from each other. PTO includes different categories like sick, and personal leaves. In contrast, all vacations can be PTO.
- It improves the productivity of employees and offers flexibility. When you go on vacations without worrying about any financial deductions, you feel relaxed. When you feel relaxed, your brain works in a better way. For example, you think about some great ideas that work productively for you as well as for the business.
- Employees enjoy the flexibility PTO offers. They feel that they could use PTO at the right time or when needed the most. In the past, employees used to make excuses about why they needed time off. Now, it empowers them to make decisions and give no reason to the employer for time off.
Disadvantages of the PTO Policy
Besides its super amazing benefits, it comes with some downsides too. So, employers must keep both advantages and disadvantages of the PTO policy before incorporating it into the time off strategy.
Some downsides of PTO include:
- Employees usually take all of their time off and get short of sick and emergency leaves. When they come back from work and feel sick, they are unable to avail PTO again. In this regard, employers must train and set workshops on how to utilize PTO for the employees.
- In some states of the US, unused sick and personal leaves are not compensated. Whereas accrued PTO is compensated on the last day of the work.
What to Include in PTO Policy?
Paid time off policy requires detailed working in its formation. You need to include a few things to include in your PTO policy.
Your company must designate expected working hours in a week. Also, include check-in/check-out systems to know if employees meet the requirement.
Paid and Unpaid Leave Options
List down paid holidays and leave periods aside from regular paid time off. If your business has an unlimited PTO policy, you need to write down and explain it in detail. Make it descriptive about what type of paid time off is available for the employees. How and when can they use this time off?
Accrual and Rollover Methods
You must know if the employee is eligible to accrue PTO. Mention the eligibility criteria for the employees. For example, can an employee take time off at the start of the calendar year or accrue at any time throughout the year? In the U.S., some states offer a use-it-or-lose-it PTO policy. You must abide by organizational and state laws to create an effective PTO policy.
PTO Termination Laws
According to Federal law, employees are not eligible for compensation against unused leaves. If you have unused time off and you get terminated, employers are not responsible for paying you.
The employer must make sure to add a requesting policy for your employees. In the PTO request procedure, the employer demands employees to notify the company about their absence. In this policy, the employee is responsible for notifying the HR for requesting PTO. You must add the procedure for requesting PTO, the deadlines and everything in the process.
If any employee fails to follow the policy, you must clearly mention the repercussions attached with it. Write all the factors that can cause the violation of the PTO policy. You must ensure that every employee abides by the rules and procedures. Add these policies into the employee’s handbook. The employee handbook is handed over to an employee at the time of hiring. Mention each step that will be taken to address the violation.
Formalize Effective PTO Policy
Offering paid time off to the employees requires a clear and thoughtful policy. In the U.S. every state has its PTO laws and employers are bound to follow them. The PTO policy should include guidelines based on the employee’s roles. When you devise the strategy, include PTO policy into employee’s hiring documents to streamline the process. You can even change the policy whenever you feel like adding changes. Employers must formalize this policy to create a stable work-life balance for their employees.