Vacation or Paid Time Off?

Traditionally, employers offered separate paid time off benefits to employees, such as paid vacation, sick leave and personal days.  In recent years, however, many companies have moved to a more flexible Paid Time Off or “PTO” benefit that incorporates all policies into one all-inclusive plan.

There are different opinions on whether employers benefit from offering PTO instead of the traditional plans.  If you are trying to design your future policy, here are some advantages and disadvantages of offering a combined PTO plan:

Advantages of a PTO Policy

  • Employees do not have an incentive to lie about being sick or having a doctor’s appointment in order to use all of their annual sick days.  This results in more transparency in the employee/employer relationship.
  • Research consistently illustrates that incorporating a PTO policy will result in employees taking more vacation time and fewer sick days.  Employers benefit in two ways:  1) Employers typically receive more notice about scheduled vacations, affording more time to plan for adequate coverage; and 2) Employees return to work more refreshed and productive following vacation leave.
  • Employees tend to value the flexibility that PTO provides.
  • Simplified administration, since employers only have to track PTO hours as opposed to separate tracking of vacation, sick, and personal time for each employee.

Disadvantages of a PTO Policy

  • Employees are more likely to consume all of their PTO, whereas they may not have expended all of their sick or personal holidays in the past.
  • Employees may tend to save all of their PTO time for vacations and come to work when they are sick, at times causing illness among other employees.
  • In some states, all earned PTO must be paid out upon separation of employment.  For companies with separate sick leave and vacation policies, state law often mandates that accrued and unused vacation time be paid out upon termination of employment, sparing the employer from compensating the departing employee for unused accrued sick and personal days.

Regardless of which plan you choose, you may want to put incentives in place for your employees to actually take time off, for instance a “use it or lose it” clause, or a cap on accruals so that if time off is not taken, then no more time can be accrued.

Also, keep in mind that these are optional benefits, but once they are in place, the company will have to abide by its own rules.  When an employee leaves, the company will have to pay for any accrued, unused vacation or PTO time.

Source:  HR Support Center