Paid Time Off Policy

How To Create and Administer a PTO Program

PTO Trends and Research

In our previous post, we talked about the good and bad of doing a PTO program, as opposed to a traditional time off structure. So, for businesses thinking about going this route, there are some things to keep in mind, and some best practices to follow.

First, the following are some research numbers and trends related to PTO programs. This data was gathered by the NFIB Research Center in their study on employee compensation in small businesses:

  • 73 percent of small employers offer their full-time employees PTO
  • 76 percent of small business respondents base PTO amounts on the time an employee has worked for the company
  • 67 percent of employers offer two weeks or more of PTO
  • 86 percent handle time-off requests for situations such as serious illnesses or childbirth on a case-by-case basis
  • 78 percent of survey participants said they handle requests for short periods of time-off on a case-by-case basis

The following are some of the things that need to be considered before you start working on the specifics of a PTO program policy:

  • Who will you include as being eligible for PTO? Will this include only full-time employees or part-time employees as well?
  • Are there going to be potential problems with understaffing? If so, how will those be dealt with?
  • How do employees request time off under the program? How far in advance should they use the leave management system to request time off?
  • Is there a maximum number of days they can take off in a row? Do employees have to take a minimum number of vacation days?
  • How do employees accrue PTO?
  • Does PTO roll over, or do people lose it after a certain time, such as the end of the year?
  • Does your state or local area have any laws or regulations that need to be included as part of your PTO policy?

Calendar or Anniversary-Based?

A big consideration in terms of the logistics is whether you’ll base the program on the calendar year or the anniversary date. For example, some policies are simply based on the calendar year. Other programs base PTO banks on the date the employee was hired, which is the anniversary year structure.

When a calendar year option is chosen, everyone is on the same schedule, which simplifies things. At the same time, it can be difficult because sometimes people can be scrambling to use all their leftover time at the end of the year. This can leave businesses in a bind, and this is especially problematic if they have a busy holiday season.

With an anniversary year schedule, you don’t have to worry about how to pro-rate employees who come on at different times of the year. It’s also easier to understand programs based on tenure. It can be more complex administratively, but using a leave management system can alleviate a lot of the issues that could come along with an anniversary-based system.

Granted or Accrued?

Another big policy decision a business will have to make is whether their structure will be based on accrued days or granted days. If you provide days in a grant-based system, it’s simpler and easier to manage. However, if your business is in a state where employees are required to have a payout for their earned days if they’re terminated, you may have to pay the value for the whole year. It wouldn’t matter when the employee leaves. This can be a burden for small businesses.

With accrued days, employees could potentially have to borrow future days to take a vacation at the start of the year. However, if an employee leaves and their vacation days are in the negative, you may lose the value of those days.

Tiered or Flat?

Tiered or flat program options have to be decided upon as well. What most companies will do is have tiers of PTO based on how long an employee has been with the company. This is a good incentive for employees to stay on with a company for longer, and it becomes part of their benefits package.

Some companies may also go with basing it on hierarchy rather than time at the company, so someone who has a higher level position has more PTO in the bank. While this does work well for some businesses, it can easily get very complicated. This is one more example of where a good attendance management system can be optimal to reduce the possible complexity and problems.

Most U.S employees reportedly offer anywhere from 12 to 15 days to start with PTO.

Budgetary Planning

According to SHRM, some specific budgetary considerations need to be part of planning a PTO policy. For example, if your exempt employees are paid a salary and have PTO, it’s pretty easy to calculate the costs and plan for them. However, if you have a nonexempt employee who’s taking paid leave, you may have to plan for extra costs. You may have to replace a nonexempt employee with a temporary worker, or it could be that you have to pay overtime wages to have someone cover the work. If the best option to not have the employees’ work covered while they’re gone, then you may need to have that employee work overtime when they get back.

Finally, even though there is a lot of flexibility in a PTO program, it’s not usually a free-for-all (although some businesses are experimenting with unlimited PTO). There may need to be limits on the number of vacation days taken, as an example.

As an employer are you going to pay leave in full-day increments, or only in half-day increments? Are there going to be times of the year employees aren’t allowed to take paid leave? For example during your busy business season?

Will you require employees to take a certain amount of vacation?

What is the formal policy going to be for employees to request leave? The best way to manage this is with a leave management system. You can put the rules in place and then it’s convenient and easy for employees to maintain the sense of flexibility that comes with PTO.

These are just a small number of the considerations to keep in mind when creating a PTO policy, but they do give you an overall feel for what you need to keep in mind.

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