Benefits Of Switching From Traditional Time Off Program To Paid Time Off Bank

(Published May 20, 2008)

Some employees drag themselves into work when they are sick as a dog. Others call out feigning illness. Behaviors that couldn't be more opposite, yet which often share the same cause: not having adequate control over their employer-provided paid time off.

In a traditional time off program, employees are given a set number of sick days, vacation days, and, in some instances, personal days. Having their time off needs fit into these neat little categories isn't always so easy for employees.

How can an employer help, and, in turn, get sick employees to stay home and healthy ones to show up? Give employees more control of their time off. One option: Switch from a traditional time off program to a paid time off (PTO) bank. Switching to a PTO bank allows employees to better plan for their time off needs. With a lump sum of time, they can designate how best to allocate their time off without worrying about making it fit into a pre-designated time off category.

One of the chief complaints against switching to a PTO system regards the payout of accrued but unused time. Some states require employers to pay out accrued but unused vacation time. Under some of these state laws, PTO can be considered vacation time, thus, possibly increasing the cost of payout, since employees are likely to have accrued more unused PTO time than just unused vacation time.

One way to take the sting out of such a requirement is to put a cap on the amount of PTO time that employees can accrue at any given time. Once employees reach the cap, they would stop earning new time until they used some of their existing time and dipped back below the accrual cap. By allowing employees to only accrue so much PTO time at any given time, you could contain the financial hit your company would face should the employee terminate and state law require you to pay the employee for accrued but unused PTO time.

What happens when employees terminate their employment with time remaining in their PTO bank is just one of several basic questions you'll need to address if your organization is considering making the switch from a traditional time off program to a PTO program. Here are some others:

• What type of absences (e.g., illness, vacation, personal, holidays) will be included in your PTO bank?
  
  
• How many days will be available, and how will that number be determined? 

• Will there be differences in the amount of time provided based on job level, seniority, or other factors? 

• Will your PTO bank replace all forms of absence pay or will you also provide more traditional leave policies for absences that are generally not anticipated, such as funeral leave? 

• What happens to leave that is unused at the end of the year? Will part or all be carried to the next year or will you pay employees for their unused time? 

• How will a PTO bank impact your payroll system? 

• How much notice will an employee have to give in order to take leave? Are there certain periods of the year when leave will not be granted?

To see how your competitors have incorporated their answers to these questions and more into their paid time off programs, check out AHI's 2007 Survey Of Traditional Time Off And PTO Program Practices. Also learn how to get employees to buy into an impending switch to a PTO program, and what HR professionals all across the country have to say about why they did, or didn't, make the switch to PTO.

Related Topic(s): Benefits - Paid Time Off, Benefits - Vacation