Pros and Cons of Paid Time-Off Plans

Use these guidelines to determine if a PTO plan is right for your organization.
By Robin Thomas, J.D.

What happens under your vacation or sick leave policy if an employee needs to stay home with a sick child? Or, what do you do if another employee wants to take two days off to attend a non-work-related seminar? Under a traditional policy that separates vacation and sick days, employees often feel forced to fake an illness to avoid using their vacation allowance. With a paid time-off (PTO) bank, employees receive a set number of paid days per year and then choose how the days will be used.

PTO Defined

Under the typical PTO plan, the employer grants employees a certain number of days per year for all types of paid absences, including vacation, sick days, or other approved reasons. Some plans also include holidays as part of the PTO bank. Employees then use the days as their personal needs dictate. For example, an employee may choose to use most of his or her PTO days to care for a sick child or other family member.

Like traditional vacation policies, employees generally must get advance approval to take planned days off. Most employers also reserve the right to deny or reschedule leave according to business needs. Unlike separate vacation and sick leave policies, most PTO plans do not require employees to give a reason for the leave, so medical verifications are unnecessary.

Advantages of PTO Plans

Many employers find this system easier to administer because they only have to track the total number of days off and do not have to deal with as many employee excuses. Employees like the flexibility and the control it gives them, because they generally do not have to justify or explain the need to take a paid day off. As a result, employees are not forced to misrepresent the reason for their absence and may be more inclined to give you advance notice. Furthermore, employees who rarely use sick days appreciate the additional time available to meet other needs.

Disadvantages of PTO Plans

PTO plans do have some disadvantages. For example, because the distinction between vacation and sick days is obscured, employees may take more time off as vacation and not save sufficient time for illnesses later in the year. Consequently, an employer may face requests for unpaid sick time not properly banked for the end of the year.

In addition, because employees typically do not have to designate which days are sick days, an employer may not know when the worker's absence qualifies for Family and Medical Leave Act (FMLA) coverage. Thus, proper FMLA medical certification may be missed or the days already used as part of the employee's 12-week FMLA entitlement may not be included in the leave request. Finally, any unused time under a PTO plan may have to be paid out at termination in certain states, such as California and Illinois .

Employer Considerations

To determine if a PTO plan is right for an organization, consider these four factors.

1. 1. Attendance patterns and costs. If employees are missing days for reasons not covered by separate vacation and sick leave policies, such as for child or elder care, a PTO plan may help.

2. 2. Organization culture and attitudes. PTO banks work well in flexible organizations that regularly delegate to employees the power to make decisions. On the other hand, supervisors and top management who seek to retain tight control may resist PTO plans.

3. 3. FMLA compliance. If an organization already has trouble identifying which absences to count toward FMLA leave, a PTO plan may make the problem worse.

4. 4. State laws on pay at termination. If a company has employees in states that require the payment of unused vacation at termination, and the company would like to avoid paying for additional days, a PTO plan may not be appropriate.

Four Tips for Implementing PTO Plans

1. 1. Determine what types of absences should be covered and then set the total number of days.

2. 2. Clarify how unused days will be handled. Specify whether they can be carried forward and paid at termination.

3. 3. Establish procedures to identify and properly certify absences that qualify for FMLA.

4. 4. Educate both employees and supervisors about the PTO program and its advantages. Plan to spend extra time with any supervisors who may be concerned about giving up some of their direct control over time-off decisions.

HC

Robin Thomas, J.D., is managing editor for Personnel Policy Service Inc., and can be reached at editor@ppspublishers.com or (800) 437-3735. Personnel Policy Service markets group legal service benefits and publishes HR information products, including a free weekly electronic newsletter, HR Matters E-Tips, which can be accessed at ppspublishers.com/hrmetips.htm.