Lopez: Paid time off: A flexible and popular employee benefit

One of the most persistently challenging chores for employers and human resources managers is administering employees’ time off from work, and there is an increasingly popular and viable option known as the PTO (paid time off) plan.

A PTO plan combines traditional vacation and sick leave benefits to provide a more flexible time-off package that better suits the needs of both the employer and the employee by allowing the employee a designated number of days off without specifying their purpose.

Since employees oftentimes don’t use all their allowable sick days, one obvious question about the PTO plan is: Do employees tend to take more time off under PTO plans than under traditional time off plans?

The answer: probably not. Employers offering PTO plans usually set benefit levels below the combined levels of traditional vacation and sick leave benefits.

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According to a recent WhitneySmith Company survey of employee benefits offered by 32 employers in the D/FW Metroplex, employees with five years of service are eligible for an annual average of 19.8 PTO days, whereas in traditional benefit plans they are eligible for an annual average of 15.4 vacation days and 10.5 sick leave days (combined annual total: 25.9 days).

As employees gain tenure, the variance narrows. Employees with 10 years of service are eligible for an annual average of 23.1 PTO days whereas in the traditional benefit plans they are eligible for an annual average of 18.7 vacation days and 11.4 sick leave days (combined annual total: 30.1 days). Although a PTO system may provide employees with fewer total days of paid leave, it gives them much more freedom in deciding how they use their time away from work.

Some employers report fewer unscheduled absences with PTO plans. In any case, when it comes to sick time, most PTO plans are similar to traditional plans in requiring employees to provide a doctor’s note when calling in sick for numerous unscheduled PTO days.

For employees, the main advantage of a PTO plan is the ability to use paid time off in any way the employee chooses with no obligation to provide the employer with a reason for the absence.

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Even with a PTO plan, however, employers still need to track the reasons for employee absences related to the Family and Medical Leave Act, the Americans with Disabilities Act and workers’ compensation leaves. Administration and recordkeeping regarding such absences is important for ensuring compliance with legal requirements.

PTO plans and traditional plans do have some similarities. For example, time off is most often accrued on a monthly or pay period basis for both plan types. Carryover of unused time is another feature common to both plan types. This allows employees to carry a certain number of unused days or hours into the next year or into a medical reserve account. Medical reserve accounts typically have a maximum accumulation of 30-60 days to be used in the event of an extended illness and to bridge the gap with long-term disability benefits

When employers allow carryover time to be used in the next year, a maximum amount of such time is usually specified and a time frame for the time to be used is established.

Although not typical, some PTO plans allow employees to “cash in” their unused days at full value or at a lesser cash value, whereas traditional vacation and sick leave plans rarely include such a provision. Employees could view a “cash in” provision as an incentive to be at work.

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Traditional vacation and sick leave plans are still the most prevalent programs for providing time off but PTO plans that combine time off for vacation, sick leave and personal time continue to increase in offerings by employers. The ratio of employers using traditional plans versus PTO plans is currently about 60 percent traditional and 40 percent PTO.

Because PTO plans offer flexibility in planning time off and generally provide more days that can be used for vacation time than traditional plans, they can be a powerful tool for employers in recruiting and retaining employees. Other advantages include increased employee satisfaction and productivity, fewer unscheduled absences and reduced benefit costs for employers.

For employers, the downside of PTO plans is that employees who might not use all their allowable sick days each year will most likely use all their PTO days. Employees may view all of their PTO as vacation time and might opt to work on days when they might take sick leave under a traditional plan, which could result in lost productivity for the employer.

The cost of paid time off benefits is significant, so employers must evaluate whether a bundled PTO plan or the traditional model of separate benefit plans is the best option for them. A well-designed paid leave program, whether a PTO plan or a traditional plan, should be designed to contribute to employee satisfaction and to be cost-effective to the organization’s bottom line.

Cheryl Lopez is a vice president of WhitneySmith Company, a human resources consulting firm based in Fort Worth. www.whitneysmithco.com