I Got the End of Year PTO Blues!

By Maren Hogan

Open enrollment, office holiday parties, and PTO are some of the many joys that come with the end of the year. PTO or sick and vacation time off changes are cropping up at this time of year, too, however, if you're singing the PTO blues, that does mean at least you're a pretty okay employer. 

Did You Know?

• Nearly one-fourth of U.S. companies offer no time off.
• The average American worker receives 10 days of paid vacation per year. European countries, by contrast, mandate that employers offer at least 20 days a year. Some EU countries have even upped the requirement to 25 and 30 days.
• Hourly workers are the exception, but there’s a catch. The bottom 25 percent of hourly workers only get an average of four paid vacation days a year, but the top 25 percent of hourly workers get 14 days.

Some companies struggle with getting their employees to take all the time allotted and struggle under hefty payouts. Others need staff in the office during the holiday period and have to deal with resentment and frustration from their staff. Here are some common PTO Blues you might hear this time of year (and some suggestions from those who’ve been there!)

One Bucket or Two?

Many HR Pros struggle with having an overarching PTO strategy versus a vacation time and separate sick time off bucket. Some states require the two to be separate, so check with your local SHRM chapter or your friendly employment lawyer. But if you don’t have to have one or two buckets, the choice can be frustrating. Which is better for your people?

• The Case for PTO. A lot of companies have switched to this comprehensive system because, frankly, it’s simpler to track. No matter why your employee takes the day off, it comes out of the same bucket. Easy to manage, easy to track and simple for everyone to understand. The issue comes when people start coming to work sick because they want to have a longer vacation. This policy can seem like it’s rewarding the healthy employees and making life a little harder for those who need to use their sick days.

Worst Case Scenario: You suffer accrual overload. Some employees may be so reticent to use PTO for sick and personal days, you find yourself paying out tons post year’s end. While vacations are a legal carry forward entitlement, sick days are use it or lose it and there was no carry forward entitlement.

• The Case for Two Buckets. While vacation and sick days in separate buckets might be tougher to manage, the system of “use it or lose it” may keep your employees happier and healthier in the long run. Companies tend to like the “use it or lose it” policy, while employees are less thrilled. However, paying out massive accrued PTO can create a serious cash cost that many companies cannot afford. The PTO banking liability increases with pay raises. But…

In a defined vacation and sick time system, without the use it or lose it option, employees often tend to charge sick time instead of vacation time and/or come to work when they don’t feel well as not to accumulate too many sick days used.

What’s Your Carryover?

So let’s say you go with an integrated PTO concept. Forty-three percent of companies offered PTO in 2016, up from 28% in 2002, according to a report from World at Work, which also said 51% of private companies, which would include small and mid-size businesses, offered PTO last year. You’ll need to address carryover or accrual, which has as many different options as the rainbow. Some structural ideas:

• Time left at the end of the employee anniversary year is banked and only usable when all current PTO was exhausted and the need for time off was due to a qualified leave reason, such as FMLA.
• A total of 80 hours in our PTO bank and that’s used for both vacation and sick time. Employees can carry over all of it, but if they accumulate 80 total hours, they stop accumulating until they use some up. No one can ever have more than 80, so the hours are lost until they take time off.
• Cap the rollover at 80-120 hours and cap the accruals at 2 years.
• Allow employees to roll over 5 business days to the following year.
• In industries where November and December are particularly busy, allow accrual to be used in January or February.
• A modified use it or lose it policy. Employees can cash-out their vacation before their anniversary date (this helps avoid the year-end payouts that can cripple smaller companies or those with very little cash on hand).
• Allow a carryover of 24 hours or 3 days but it must be used by March 31.
• You can avoid carryover if you set it up for a max accrual. Some PTO plans allow you to accrue up to 40 hrs more than max accrual and stops accruing until you reduce time in the bucket. Accrual is based on a rolling calendar rather than the annual cycle.

No matter how you structure your PTO or vacation and sick leave, keep in mind these important ideas:

• Employees need a vacation. If they are having difficulty taking time to recharge, chances are it will impact your business negatively. Workers, on average, use only 54% of their eligible vacation time.
• If you DO need to change your approach to vacation and sick time, remember to work with your employees. It’s a necessary benefit and any changes need to be communicated carefully.
• Examine what you allow to rollover. If your employees want 5 days but you’re only allowing 3, consider if the level of dissatisfaction is worth 16 hours. Of employees who get paid time off, more than 90% have taken at least some of those days over the last 12 months, Glassdoor said, yet only 23% took all of the time they were entitled to.
• Communicate effectively. If you DO have a use it or lose it policy or put restrictions on your accruals, make sure you use a system that reminds your employees when they need to use their time or when it might be in their best interest.

PTO is an effective recruiting tool and can make employees feel more empowered in the long run when done correctly. 662 million vacation days were left on the table by employees last year…don’t let that happen to you! By structuring a plan that works for your company and employees, communicating it effectively and encouraging your employees to take vacation and sick time when they need to, you don’t have to suffer through the PTO blues!

 

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