Vacation vs. PTO: Which plan is right for your organization?

By Laura Pokrzywa

tropical-paradiseAs the temperatures rise, so do the number of requests for vacation or personal days. If you are finding yourself a bit overwhelmed trying to manage your vacation policy, now might be a good time to consider the possible advantages of a Paid Time Off (PTO) policy.

More and more companies are doing away with the old system of differentiating between “vacation time” and “sick/personal time” in favor of a more streamlined PTO plan. And for good reason. PTO plans offer advantages to employee and employer alike.

Advantages to employees:

  1. Greater flexibility. PTO plans give employees the opportunity to allocate their time off as they choose, without the need to designate a reason. Whether it’s for vacation, illness, school activities, child’s illness, personal business or medical and dental appointments, the employee can take time off if they still have time in their personal PTO account.
  2. More privacy. Employees don’t always want to tell their supervisor why they need time off. They may fear their reason would seem trivial to the employer. Or it may simply be something too personal to discuss with the boss. Employees appreciate the freedom to decide for themselves if time off is needed.
  3. Better morale. Giving the employee room to manage his time as he sees best is a show of respect. It goes a long way toward improving morale.

Advantages to the employer:

  1. Less administrative cost. PTO policies require much less time be spent tracking reasons for an employee’s absences. All days off fall under the same category. No need to establish or track the reason for the time off. You simply track the number of hours used.
  2. Less information. The Americans with Disabilities Act (ADA), the Health Insurance Portability and Accountability Act (HIPAA) and the Genetic Information Nondiscrimination Act (GINA) all set strict regulations on how an employer handles and/or responds to information about an employee’s health. Since PTO plans do not require the employee to divulge the reason for their requested time off, the employer is less likely to stumble into information they do not want to know. When it comes to your employee’s medical information, the less you know the better!
  3. Less absenteeism. Given the freedom to manage their time off, employees tend to budget carefully and take less unplanned days off. In addition, because most PTO policies allow employees to use half-day increments, they are less likely to simply call in sick when they have to visit the dentist, doctor or schedule some other personal business. They are more likely to request only the time they actually need.

Similarities: As with vacation time, the amount of PTO earned usually depends on length of service with the company. PTO is also not accrued during unworked time such as a leave of absence or a suspension.

Also similar to a vacation plan, your PTO policy should clearly detail how an employee is to request time off and how much notice will be required for non-emergency requests.

Allotments vs. Accruals: If you decide to establish a PTO policy for your company, you will need to decide if time will be allotted (given in one lump at the start of a selected time period) or accrued (credited to the employee’s account as it is earned, either weekly or monthly). If you choose to have employees accrue the time, you will need to create an accrual schedule, such as the example shown below. This can be a simple table showing the length of the employee’s service, the rate at which time will accrue, and the time earned in a year.

Months of Service                 Time accrued                         Total PTO days
Up to 24 months                    1.0 days/month                            12
25-36 months                          1.25 days/month                          15
37-48 months                          1.5 days/month                            18
More than 49 months             1.75 days/month                          21

What about unused time?: Just like in a vacation plan, the employer can decide if unused PTO time can be rolled into the following year or if it is to be forfeited at the end of the year (as in a “use it or lose it” plan). Some employers choose to pay out any unused time at the end of the year, rather than allowing a rollover or requiring forfeiture. Some prefer to allow unusedmoney time to be rolled into the following year, but may establish a maximum number of days that can be accrued (as shown in the chart above).

Another consideration before you implement any paid time off plan, whether it is PTO or vacation, is how to handle pay outs of unused time upon termination of employment. Some states consider accrued time as wages and require it be paid out upon termination. Others allow the employer to establish a “use it or lose it” policy. Since laws vary regarding payouts of unused time, it is best to check your state’s law before establishing your policy.

PTO plans aren’t perfect: Employees who view their PTO as “vacation time” may forget to save a few days for sick time. These employees may end up either coming to work when they are ill or staying home and taking the loss as an unpaid day.sick-man

Another disadvantage is, ironically, based on one of the advantages we already considered. The PTO system limits the need for an employee to disclose personal medical information. But that can make it difficult to determine when an employee is taking time off for a serious illness that may fall under the Family and Medical Leave Act (FMLA). If your organization is covered by FMLA, make sure your supervisors are trained to spot potential FMLA-eligible situations. Additionally, you want to ensure that your employees know their FMLA rights and how to notify the company should they require this leave.

Whichever plan you are managing, if you have questions about vacation or PTO policies, write to us at hrhelpline@eastcoastrm.com. We would be happy to help!

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