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What is the best PTO policy to offer your employees? 

February 24th, 2023 | 4 min. read

By Kacie Salsbury

A good PTO policy to offer your employees is more important now than every before. Why? Do a quick Google search on “work-life balance,” and you will find everything from what it is— “Work Life Balance Defined”— to any number of tips and tricks on how to improve it. Although the term was coined in the 1980s as women began to enter the workforce in greater numbers, both the millennial movement and the residual effects of COVID’s disruption have caused a strengthening of its reality among today’s employees and employers alike.

And while this term certainly encompasses many aspects, one important element is time away from work -- but not at the risk of a smaller paycheck. In response, companies are foregoing the old-fashioned “Vacation” and “Sick Leave” plans, for an all-encompassing “Paid Time Off” (PTO) plan, that allows their employees to manage their work-life balance as they see fit. The biggest challenge is not whether to offer this benefit, but rather, what is the best way to offer it?

Questions to ask before creating a PTO policy

While it may seem that the most important part of designing a PTO plan is how many days off you will allow, there are actually a number of equally important questions that need to be considered first:

  • Which employees will be eligible to earn PTO hours?
  • What method will be used to determine the amount of hours they earn?
  • When will this benefit begin, and what happens to unused hours?
  • Then there is the obvious final question: How in the world can you keep track of who is requesting time off, who needs to be notified, and if they even have enough hours available?

At Whirks, we can accommodate various methods and designs, but the simplest, most equitable, and easiest to reward longevity of employment is the “Per-Hours-Worked, Anniversary-Date-Based” plan. Let’s discuss.

What is a 'Per-Hours-Worked, Anniversary-Date-Based' plan?

Typically, Paid Time Off benefits are included as a perk to Full Time employment. However, with the modern PTO policy encompassing everything from vacation time to sick leave to mental health days, providing an allotment of PTO hours— even for part-time positions— can be beneficial. Some of the positive outcomes employers can gain by offering Paid Time Off are, “[saving] on costs, fewer cases of absenteeism, and…a more loyal and productive workforce,” according to Chris Chancey, CEO of Amplio Recruiting. Therefore, establishing a policy that accrues PTO hours based on the number of hours worked allows you to be equitable across all employee types regardless of if they work full-time or part-time.

One hurdle a “Per Hours Worked” accrual method does involve, however, the gradualness by which employees will gain usable hours. Some employers prefer to award all PTO hours upfront (as a “Lump Sum”) so that employees can use them at their discretion throughout the year. The Lump Sum approach can be particularly helpful to employees in making preparatory arrangements for things like vacations, but there is the risk of them leaving or being terminated shortly after having used their year’s allotment, or using all of their hours too early in the year.

The main thing to keep in mind if you choose a Per-Hours-Worked policy over a Lump-Sum policy is that because hours are awarded with each pay period, you will need to allow for a certain number of unused hours to carry over into the next year, since it will not be possible to use the hours that are awarded within the last pay period of the year otherwise.

When should the PTO year begin?

Which brings us to the question “When does the PTO Year begin?” In the not-so-distant past, the idea of PTO benefits beginning on January 1st and ending on December 31st was standard. It was by far the easiest way to keep track of employees’ balances throughout the year. However, with the introduction of more robust payroll software, the need to make everyone start fresh at the new year is no longer necessary, nor is it the best. By structuring your PTO policy around the employee’s Hire Date (a.k.a., Anniversary Date), you open up many helpful management options, such as tiered accrual rates, probationary periods, and scattered carryover dates.

Incentivizing length of service as a metric is a great option

A great way to incentivize continued employment is to increase the number of PTO days an employee can earn based on their length of service. For example, a new employee may be awarded just five (5) days of PTO in their first few years, but ten (10) days once they have been employed for five years, and 15 days after ten years. Because these milestones will be reached at different times for each employee, the only means by which this kind of tiered benefit works equitably is if it is based on each employee’s Anniversary Date, and not the calendar year.

Additionally, if you want to guarantee a certain duration of employment before offering PTO hours, it is necessary to look at the employee’s Hire Date by which to apply the probationary period. Finally, and perhaps less obvious, is that if employees are awarded hours at the start of their next Anniversary year, not everyone is in a rush to use up their benefit at the same time before it is lost to carry over. Now, of course, holiday seasons will still cause employees to request time off simultaneously, but having hours available well past the end of the calendar year can help encourage alternate plans to be made.

The best way to track PTO time

Once you have the difficulty of deciding these details behind you, the REAL hard part begins – how to keep track of it all?! The great news is, if you have created an Anniversary-Date Based policy, whether it is a Per-Hours-Worked accrual or a Lump-Sum allotment, the software we use here at Whirks (isolved) can do all of the heavy lifting for you.

Thoughtfully designed policies can be set up for full automation of both the awarding of hours and the reduction of balances as part of your regular payroll processes. Better yet, employees can see their balances and request time off easily from their own Self Service accounts. And depending on who needs to know about the request and/or have the final say in approval, we can also set up an automated workflow to notify all important parties by email along the way. With just a couple of clicks, PTO requests can be reviewed, approved, and hours added directly to payroll, no matter how in advance a request is submitted.

Paid Time Off benefits are increasingly becoming a vital part of compensation packages. In fact, where this benefit has historically been a discretionary option, many states are beginning to mandate, at the very least, a Sick Leave policy that does not require that employees choose between exposing workmates to illnesses or getting a paycheck. By designing a policy that provides space for your employees to build a good work-life balance, you are laying a foundation for healthy employees and a positive work environment. Add to that the reward of more time off with continued employment, and your need to visit hiring fairs may become a thing of the past!

Finding a happy medium

Benefits like PTO are a great way to make your workplace an attractive place to work. But it's also crucial to have employees in the office to keep the operations of the business running. Check out our article on "How to create leave policies that are generous and practical" to keep refining your policy so it works well for both you, your business, and your employees.

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