Paid time off and vacation tracking

What Should Employers Know About Paid Time Off?

What Is Paid Time Off?

An increasing number of employers are changing how they manage employee time off. They’re going from a traditional time-off structure to one that’s called Paid Time Off or PTO. A traditional leave program is one that includes designated sick and vacation time. A paid time off system on the other hand functions like a bank of days off. Employees can take leave for whatever reason they choose. For example, they can use this time for vacation, appointments, kids’ activities, sick leave and personal days.


In a traditional system, employees have a set number of days for specific vacation and sick time.

Surveys and research have shown the use of traditional time-off programs has been on the decline while PTO practices have gone up quite a bit. According to research from Mercer’s annual Survey on Absence and Disability Management, the use of PTO banks went up from 38 percent of employers in 2010 to being utilized by 63 percent in 2015.

It is possible under a PTO system to also have separate time-off programs for bereavement, jury duty and holidays. PTO banks don’t include things like workers’ compensation, family and medical leave, military duty, or short or long-term disability leave either.

The overall objective of PTO for most employers is to provide more flexibility, to reduce absences and to attract top talent.

When a company creates a paid time off policy, they can use a leave management system to know how many days are used, but it simplifies the need to categorize them.

While there is a lot of growth regarding PTO banks, there may be state and federal laws that could sideline the push to manage time off in this way. For example, New York City and California are working on laws that require employers to provide employees with a certain number of paid sick time.

These laws don’t necessarily mean employers can’t use PTO banks, but they can make the oversight of them and their management more challenging. With that being said, this is another place where a comprehensive leave management system or attendance management system could be helpful, even with new laws and regulations in place.

What Are The Concerns?

In states not pushing for more regulation of paid sick time, the idea of a PTO bank can seem like a win-win, but there are possible downsides that need to be assessed and balanced.

First, when there’s so much freedom of how time off is used, it can create complexities for employers. For example, employees could be encouraged to come to work even when they’re sick. They could prefer to use their PTO for vacation time, as opposed to “wasting” it on being sick.

That could make for the spread of illnesses around the office that could lead to serious productivity problems. There is a tendency for employees to see all of their available PTO as vacation time and that just gets really sticky to manage.

There may also be some employees that use up all their PTO time for let’s say a vacation, leaving none in the event that they get sick. They may have to then take unpaid sick time off.

Companies may also start to run into problems related to absenteeism in some cases. At the same time, depending on the culture of an organization, when an employee has the flexibility, they may not feel comfortable using any of their available time off. That can create the opposite problem, where an employee becomes burned out. Employees can often go in one extreme direction or the other when they have the flexibility of a PTO policy.

Another big obstacle of a PTO policy is the fact that it can put newer employees at a disadvantage compared to longer-term employees if it’s based on an idea of accumulation.

What Are the Benefits of a PTO Policy?

Most organizations do feel the benefits of a PTO policy outweigh the concerns and obstacles, which is why they’re becoming so popular.

First and foremost, modern employees value autonomy and flexibility. This is particularly true of the Millennial generation. These employees want to feel like they have the ability to make their own schedule and work in the way that they feel happiest with.

PTO banks go a long way toward giving employees that freedom and flexibility they want.  It can in many cases make for more engaged and productive employees. PTO banks can also be useful to promote work-life balance principles in the workplace. For example, parents can take time off because their children have a day off school or to go to an event.

PTO banks can reduce the feeling of needing to be dishonest about why you’re taking time off as well. It can improve transparency, which is a key tenant of positive corporate culture.

With a PTO policy and a good leave management system in place, it also takes a lot of the burden off the employer. The employer doesn’t have to micromanage every detail of employees taking time off. Instead, they can focus on the bigger picture and only really be concerned about employees who have problematic attendance patterns. This frees up managers and administrative employees to do more strategic things. If most employees are coming to work and there are no problems or red flags, attention can go elsewhere.

Probably one of the biggest benefits for a lot of employers who are weighing a PTO approach to attendance is that it’s a recruiting tool. Many employers are facing a big shortage of skilled talent, and in order to get the people they need, employers have to get creative with what they offer.

For a lot of employees, it’s not all about money. There are a lot of other priorities they have when they’re looking for a new job, and the flexibility offered by PTO can be extremely appealing. It can be a great part of an overall recruiting package that values individuality, freedom of choice, and work-life balance. PTO banks can also be good to promote the idea of being a family-friendly workplace.

With that being said, a PTO bank concept isn’t right for every business. In our next post, we talk about some things to consider and how to create one of these policies in your business.

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