At first glance, a paid time off (PTO or PTO bank) policy versus the usual vacation/sick time approach seems like the better option. After all, having one set number of days people can use at their discretion must be a heck of a lot easier to track than vacation time, sick days, personal days, and paid holidays, right? But make no mistake, there are downsides to a PTO policy many companies don’t think about or anticipate when making the switch. This article will walk you through some the issues and challenges to think about in how to choose between a POT policy and traditional time off policy.

The Shape of PTO Versus Traditional Time Off

Before getting into the pros and cons of the two different approaches to time off, it’s worth noting how the two policies tend to play out in companies:

• Traditional Time Off when averaged across employers typically includes 10 paid holidays, 14 days of vacation, 2 personal days, and 8 sick days over the course of a year.
• A PTO Policy at most companies that have it tends to offer an average total of 30 days of paid time off that can be used at the employee’s discretion for whatever purposes.

The Downsides of a PTO Policy

Let’s start with the potential downsides of going with a PTO policy:

• Reducing the time off benefit: If you add up the average days of time off at most companies with a traditional approach, you might notice the various types of leave add up to a grand total of 34 possible paid days off from work. But the average PTO policy only offers 30 days off. A lot of companies, when they made the switch from a traditional time off policy to a POT policy, reduced the overall average number of days off. In some cases this is a sneaky way to cut their costs. But this sort of thing is bound to be noticed by savvy employees, and could result in serious declines in morale and productivity that more than wipe out the gains of this back-door reduction in benefits. If your company is thinking about making the switch from a traditional policy to a POT policy, carefully consider the potential backlash and unintended negative consequences if your switch ends up reducing the amount of time off people get.
• More time away from work: Instituting a POT policy could also end up causing an overall increase in the number of days employees are absent from work. When you have a traditional time off policy, most workers don’t use all of their sick time, which means they’re at work more than what the policy allows for. But with a PTO policy, you need to understand that most workers are going to essentially view all of it as vacation. They will certainly use all of it, and they’re going to use it for vacation without even thinking about what will happen when they’re sick. As a result, you actually end up having more people away from work with a POT policy because it will rarely go unused.
• Coming to work when sick: If your employees tend to use up all their PTO for vacation time away from work, they’re more likely to go ahead and show up to work even when they’re sick and ought to stay home. The want to power through their days even when they’re sick because they don’t want to “waste” their PTO time on an illness. As a result, they bring their sickness to work and spread it around, making everyone less productive or forcing others to take time off for being sick. Yes, PTO is meant to cover both vacation and sick time, but in practice most workers view all PTO as vacation time.
• Unused time liability: At most companies, if you have a traditional approach to time off, sick time is a use-it-or-lose it proposition where unused sick time doesn’t carry forward. Vacation time, on the other hand, often does. In a PTO policy, unused time does usually carry forward. As a result, companies with a PTO policy tend to end up carrying forward more time off that eventually has to be honored in some way, making it a liability. Companies with a traditional policy carry forward less time because some of the unused time off does not get carried forward.

Managing the Issues Around Time Off

It’s surprising to many how thorny the issue of switching to a PTO policy can be if you haven’t thought about the challenges raised above. However, if you’re smart in how you go about making the switch, it is possible to craft and implement a PTO policy that works for everyone. Keep the following in mind:

• Be fair: Don’t try to pull the wool over the eyes of your workforce by sneaking in an overall reduction in their time off benefits by giving them less time off under a PTO policy than they had under the traditional system. It’s simply not worth all the resentment and backlash you’re likely to experience.
• Advance notice: You also have to be smart about how the policy is crafted and making sure people understand how it will work. For example, you still need to know in advance when people are going to be away from work. A PTO policy doesn’t mean an employee can just phone in and say they’re not coming in for the next two weeks. But you also need to allow for emergencies, including illness. Think it through and make it clear. Define “emergency” so employees know what qualifies. Make sure people know any “blackout dates” when PTO can’t be used for vacations because it’s an all-hands-on-deck time of the year, and so on.
• Managing sicknesses: Also make it clear to employees that they should not come to work sick, and if they do you should send them home to protect the rest of the workforce. If employees use up all the PTO time on vacation and don’t have anything left for when they’re sick, consider letting them run a negative balance that they have to make up for at some point.
• Compliance: When switching over to a PTO policy, you have to decide whether or not you will carryover unused time. Check your local and state regulations to be sure you’re in compliance with any requirements.
• Communicate: If you’re going to do the switch to a PTO policy, plan for it to take effect on January 1, and start talking to your employees about it several months ahead of the switch. When it comes to making sure employees understand company policies around time off, there’s really no such thing as over-communicating. It’s one of their most valued benefits, and they want to know everything about it – and more so if it’s going to change.

Most employees and job seekers see PTO as the preferred way to receive a time off benefit. They don’t have to justify every day off and have more control over how they use their time off. Many see it as more vacation time if they don’t tend to get sick very often. From the company perspective, it also seems like a win thanks to the reduction in administrative time and resources to track multiple types of leave for each employee under a traditional system. A PTO policy can be a win-win for everyone if it is carefully crafted and clearly communicated. Think through the potential downsides, avoid the missteps other companies have made with PTO policies, and above all else, treat your employees fairly – your people are your most important asset!