How to Craft Effective Employee Time Off Policies

Paid time off is an important employee benefit for any company, but designing the right policies is no easy task. Here are some common PTO guidelines to help you structure your paid time off program.

There are many options to consider when developing paid time off policies for your company. They want an arrangement that attracts top talent and promotes a positive corporate culture, but also needs to be sustainable and affordable.

Before creating a PTO policy for your company, you must consider local legal requirements (typically at the city or state level) and understand the most common types of PTO.

Do companies have to offer paid vacation?

At the federal level, companies are not required to offer paid vacation. However, under the Family and Medical Leave Act (FMLA), employers are required to provide unpaid, job-protected leave for family and medical reasons. If an employee takes FMLA-qualified leave, the employer must continue health insurance coverage as if the employee had not taken the leave.

Under FMLA, eligible employees are entitled to 12 workweeks of leave within a 12-month period under the following conditions:

The birth and care of a newborn child within one year of birth.
The placement of a child for adoption or foster care with the employee within one year of placement.
Caring for a spouse, child or parent with a serious illness.
A serious health condition that prevents the employee from performing the essential functions of their job.
A qualifying hardship that arises because the employee's spouse, child or parent is a member of the military or is on "active duty."

Alternatively, employees are entitled to 26 workweeks of leave within a 12-month period to care for a covered service member (spouse, child, parent or next of kin) with a serious injury or illness.

However, in many cities and states, companies are required to provide a minimum amount of vacation days. Some states regulate whether a company is required to pay out unused paid vacation upon employee termination. If you are unsure whether your state or city has any laws or regulations regarding PTO withdrawals, contact an attorney or your legal team.

Common PTO Guidelines to Consider

There are many different ways companies can offer paid time off to their employees. These are some of the most commonly offered measures today:

Traditional holiday

When companies offer traditional vacation, they differentiate the specific reason an employee is taking time off. As a rule, these are vacations, holidays, sick days and personal days. Some companies add additional days off, e.g. for bereavements, jury duty or volunteer work.

This system can become very complex as employees and employers have to consider the different types of leave. Although traditional vacation is the most common in the United States, many modern companies have moved to stop categorizing traditional vacation and instead offer uncategorized PTO policies.

Sabbaticals

Sabbaticals are longer periods of time off that are typically granted by employers when an employee has reached a certain milestone or length of service. Unlike paid time off, sabbaticals can last anywhere from a few months to a year. Although many sabbaticals are paid, the length of the absence requires an employer to hire a replacement or expand duties to other team members.

Sabbaticals can be a positive experience for an employee, especially if they are struggling with burnout. Taking time off from work to recover, learn new skills, and focus on personal experiences allows for a better working relationship once the employee is back. Additionally, sabbatical options are a unique benefit to offer potential employees.

Saved PTO

If the employer offers a PTO concept, employees receive a certain number of paid vacation days that they can use as they wish. By giving your employees the freedom to decide how they want to use their PTO, you encourage your team to find the optimal work-life balance. Similar to traditional time off, employees can use their accrued PTO (also called combined PTO) as sick leave, vacation, personal days, etc.

According to the Society for Human Resource Management, 54% of employers that have implemented a combined PTO program have seen a decrease in unplanned absences of up to 10%. Another 4% of employers found that these absences fell by 20%.

Earned PTO

Similar to accrued PTO, employees have a certain number of vacation days available per year that they can use for vacation days, sick days, etc. However, under this policy, employees accrue vacation days throughout the year based on hours worked, typically in hourly increments. For example, an employee with 12 days of paid vacation receives three days of PTO per quarter.

Unlimited PTO

With this form of PTO, employees can take as many days off as they want throughout the year. Typically, employees must announce their vacation in advance and obtain supervisor approval before taking it. Because employees do not earn a set number of PTO days (which are considered payroll liabilities), companies are not required to pay out unused PTO days when an employee leaves the company.

Although unlimited PTO days may seem attractive, 37% of workers who take advantage of these plans don't use their time off at all. Employers that offer unlimited PTO options should consider how they can better incentivize their employees to take time off and recharge.

Seniority bonuses

Human resources departments can increase the number of paid vacation days depending on length of service. For example, employees who have worked for a company for more than three years could receive five additional paid vacation days per year. This can be a positive incentive for employees to stay with the company longer.

Flexible PTO

Instead of requiring employers to take sick leave, vacation, or personal leave, flexible paid time off allows employees to choose how they want to use their PTO. This type of PTO is helpful for those who are parents or caregivers, who celebrate holidays outside of the state holiday calendar, or who need to travel for personal reasons. One point employers need to consider when offering flexible PTO is how they will find the coverage, such as: by requiring employees to report their flexible PTO before using it.

Streamline your PTO policies with IceHrm for efficient time-off management, ensuring a balanced and rewarding work environment for both employers and employees.