Vacation Time or PTO?

Jan 31, 2014

vacation time or ptoTraditionally, employers offered separate paid time off benefits to employees, such as paid vacation, sick leave and personal days.  However, in the past decade, many companies have moved to a more flexible Paid Time Off or “PTO” benefit that incorporates all policies into one all-inclusive PTO plan. Should you offer your employees vacation time or PTO?

The debate as to whether employers benefit from offering PTO  verses separate vacation, sick and personal leave plans is constantly being researched.  In an effort to assist employers in making an informed decision in this regard, below are some advantages and disadvantages of combining the company’s separate paid time off benefits into a single Paid Time-Off (PTO) plan.

Advantages of a Paid Time Off Policy (PTO): 

  • Employees are not incentivized to lie about being sick or having a doctor’s appointment in order to use all of their annual sick days, resulting in more transparency in the employee/employer relationship.
  • Research consistently illustrates that incorporating a PTO policy will result in employees taking more vacation time and less sick days. This benefits employers in two ways; first, employers typically receive more notice about scheduled vacations, affording more time to plan for adequate coverage.  Second, most mental health professionals agree that employees return to work more refreshed and productive following vacation leave.  The same results do not hold true for employees utilizing sick days.
  • Employees tend to value the flexibility that PTO provides.
  • Employers only have to track PTO hours, as opposed to separately tracking hours for vacation, sick and personal days.

Disadvantages of a Paid Time Off Policy (PTO):

  • Employees are more likely to consume all of their PTO, whereas they may not have expended all of their sick or personal days in the past.
  • Employees tend to save all of their PTO time for vacations and come to work when they are sick, at times causing illness among other employees.
  • In some states, all earned PTO must be paid out upon separation of employment.  Should the company enforce separate sick leave and vacation policies, state law often mandates that unused, accrued vacation time be paid out upon separation of employment, sparing the employer from compensating the departing employee for his/her unused, accrued sick leave.

For whichever program you choose, it is crucial to establish clearly defined policies in your company’s employee handbook appropriate for your state (and/or for those your employees are in) and to communicate in advance the information to all of your employees, especially if your company transitions from one program to another.

Please review your state’s laws regarding vacation and PTO, and contact us for more information.

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