Should You Combine Vacation, Holiday and Sick Days Into a Single Benefit Pool?

Transitioning to a paid time off system may make your employees happier and save you time, money and human resources headaches down the road

Should You Combine Vacation, Holiday and Sick Days Into a Single Benefit Pool?

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Vacation. Sick time. Holidays. Personal days. If you offer some or all of these to your employees, it can be dizzying to keep track of it all. And chances are, you’ll run into confusion or even conflicts about how you administer them — from people taking sick days just because they’ve run out of vacation to which holidays people observe based on their culture, religion or other circumstances.

For these and countless other reasons, more and more employers are taking a different approach — paid time off, or PTO.

“Paid time off is a policy that combines leave into one bank,” says Sylvia Francis, who oversees compensation and benefits for the Regional Transportation District in Denver. Francis also serves on an advisory panel on employee benefits for the Society for Human Resource Management.

More Flexibility

Francis considers PTO an improvement over traditional, categorized time off.

“It is an alternative that seems to fit our society much better, as folks strive for a better balance between work, home and play,” she says.

An estimated 57 percent of employers offer PTO plans, and while many are mid- to large-size companies, Francis considers them suitable for employers of any size, including small service companies like plumbing contractors.

“I believe that small employers may actually benefit more from a PTO plan than a large employer,” she says.

Small employers with fewer resources may be harder pressed to cover unscheduled absences.

“If an employee has PTO, they can plan absences, thus giving the organization the ability to plan for coverage," Francis says. “For the employer, PTO has been proven to reduce unscheduled absences.”

For example, the out-of-vacation employee who decides to take a sick day for an extra day off won’t call in until that day.

“Under PTO, you can schedule that day off, aiding the employer in covering your absence more easily,” Francis says.

PTO can also streamline record keeping and personnel management.

“Instead of managing different time-off categories for each employee, managing a PTO plan is a simple matter of noting when an employee uses some of his or her banked days of PTO,” Francis says.

Employees Benefit

But PTO isn’t only good for employers. It also offers “more flexibility for the employee,” Francis says. “If they do not use sick time regularly, they have a choice to use the time for vacation or just personal days. No questions asked; no doctor’s notes.”

The so-called millennial generation (typically identified as workers now anywhere from their late teens or early 20s to perhaps as old as 40, depending on whom you ask) are said to especially seek better work-life balance.

“But I think this cuts across generations,” says Francis, who first implemented a PTO plan more than 15 years ago. Aging baby boomers and midlife members of Generation X “want more flexibility to travel, spend time with grandkids, etc.”

And if workers view the plans positively, that helps the employer as well. Increasingly, job seekers “are requiring flexibility in their workplace,” Francis says. “I believe PTO helps companies to recruit, engage and retain employees. In this tight labor market, anything you can do to entice a candidate to your organization or an employee to stay with you is a benefit.”

Variety of Plans

PTO plans aren’t one-size-fits-all. Some combine just sick and vacation days, treating holidays separately. Others include holidays. Still others may wrap in floating or personal days (assuming those were offered before the transition to PTO).

Some employers realize savings from changing to PTO, but that varies tremendously depending on what the previous plans covered, whether the business has an inordinate amount of unscheduled absences before the change, what categories of time off the new PTO plan covers, and how new and old plans compare with respect to the total number of days off provided.

WorldatWork, an organization for human resources professionals that focuses on compensation, found in a 2016 survey that, on average, PTO plans reduced total time off to 16 days from 20 days for first-year employees and to 27 days from 37 days for employees with 20 or more years. But that’s “really a moving target, based on how the organization structures its PTO plan,” Francis says.

And there are costs to putting a new plan in place — updating your payroll software, for example, but perhaps more significantly, taking the time to research and design the best plan for your particular business.

It’s also critical to understand what regulations apply to PTO plans. The federal government doesn’t regulate them currently, but individual states have implemented rules, and they aren’t all the same.

Colorado, where Francis works, requires employers to permit employees to use PTO as soon as they earn it, for example: That’s different from most vacation plans in which workers accrue time off over the course of the year but typically have to wait until the next year to take it.

Making the Switch

Employers switching to a PTO plan from one that differentiates kinds of time off need to carefully plan for it. How will current leave be converted to PTO? What policies will you set for how, or whether, leftover PTO time at the end of the year can be carried over to the next? How do you manage the cost of paying out unused PTO to a worker who leaves your employment with time still “in the bank”?

And because lengthy illnesses happen, some workplaces add in a separate extended illness bank that may accrue a handful of days a year and takes effect when a verified illness lasts beyond a certain amount of time, such as three days.

When making the change from traditional time-off policies to PTO, Francis says, “You also must communicate, communicate, communicate to employees about the PTO benefits to the employee.”

Some employees may view a PTO conversion as taking away sick time or forcing them to take vacation time when illness strikes.

“In my experience, a good explanation and plenty of communication can reduce the ‘noise’ about the change,” says Francis, who recommends that employers be transparent and “honest about why you implemented PTO and the benefits to the employee as well as the organization.”

Consider surveying employees or enlisting a committee to help develop a PTO plan. A committee that has bought into the change “will become champions and make the transition a heck of a lot easier," Francis says.

And communication needs to continue after implementation so that expectations are clear all-around.

“The biggest problem I have seen is that employees see PTO as vacation only and ‘forget’ that sick time was combined with vacation to become PTO. Some will use all their PTO for fun and neglect to save any for illness,” she says.

If you find that managing many different categories of time off is becoming more complicated for your business, consider whether the PTO approach could help you. It might save you money and time in the long run.



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