The Fair Labor Standards Act does not require that businesses offer paid holidays or any paid vacation time. The US is far behind other countries in that sense. Canadian employers are legally obligated to offer at least 2 weeks paid vacation to their workers. That is even quite low when compared to European Union member countries.
Why would your business offer PTO (paid time off) if not required? In short, it’s a great recruiting tool. I wouldn’t even try to disguise it as anything else. Employees like it, they deserve it.
Some businesses offer a plan that includes vacation time, a couple of sick days, and maybe even some personal time. Others offer lumped PTO that includes all of those in one set amount, and some business owners like Virgin founder, Richard Branson offer “unlimited PTO”. His employees can take as many days off as they need, no questions asked.
As a business owner, your specific program and what it entails is mostly up to you, but we’re happy to help. Let’s look at the choices you’ll have to consider when creating a PTO program and what we might recommend.
When Creating Your PTO Program, You’ll Decide:
Is it calendar or anniversary based? If based on the calendar year, a PEO can track your vesting system accurately. Otherwise, many businesses will have to track it themselves.
Is it unlimited or standard? Are you interested in trying Mr. Branson’s approach? If so, I applaud you. This can be appealing to top performers in your industry. Just keep in mind, this system must be based on trust and the idea that employees will get their work done before taking time away.
Flat or tiered? If you use a standard approach, decide if the amount of days is based on a flat rate offered to everyone or a tiered system that rewards long time employees. Although a tiered system takes more tracking, it is a great way to encourage loyalty from your employees.
If you choose accrual, decide if you will allow negative accrual (letting employees use days before they’re earned).Granted or accrued? Our HR/Client Service Coordinator, Hope said, “I always recommend an accrual method. This method works well because employees can’t take off immediately after receiving their allotment of days/hours. Accrued time also helps stabilize your workforce. As an employer, you know that you will have business coverage because employees are accruing their time in different increments based on their years of service.”
Rollover or “use it or lose it”? We recommend the rollover method with a cap amount, that way employees who haven’t used their PTO won’t try to use it at the same time (end of year holidays).
CA Law Tip
California (and some other states) protect their citizens by barring the “use it or lose it” policy. Employers of these states must pay out any unused PTO time at the end of employment.
Other PTO Program Considerations
If you choose to offer PTO in your business these are some other questions you will want to answer before employees start asking.
- Are any days of the year blocked out?
- What about half days?
- How will you track the PTO?
- Where/How will employees track their own PTO?
- How do employees request PTO?
- How many days notice must employees give to schedule PTO?
Taking the time to create a successful PTO program can pay off greatly with improved engagement and motivation amongst your employees. It can be a valuable recruiting tool or it can create a costly disaster if not handled correctly. You should consider all the points stated above before formulating your specific PTO program. Luckily, the cards are mostly in your hands. Choose wisely and don’t be afraid to ask for help.