It may come as a surprise to learn that employers are not legally required to provide paid time off (PTO).  That’s right—nothing in federal or state law requires employers to give paid leave time to workers.  In fact, about a quarter of American employees work without paid vacation, holidays, or sick leave.  PTO is extended solely at the discretion of an employer, as long as the policy is applied without discrimination.

Why Provide PTO?

Employers may not be legally required to provide paid leave, but most do anyway.  Why?  Because employees love time off.  When you think about it, PTO is mutually beneficial to employers and employees.  Benefits like PTO make an employer more attractive when recruiting and retaining employees, and a generous vacation policy can make the difference between a top candidate choosing your company or choosing to move on.  Sick employees can recuperate at home without having to worry about dragging themselves in to work (and possibly infecting the entire office).  Employees on the verge of burnout can take a vacation and come back refreshed and ready to work.  So really, PTO is also an effective combatant against lost productivity.

How Does PTO Work?

Simply put, PTO typically provides a single bank of hours that can be used for personal leave, vacation, and sick leave.  This single-bank system is great for a number of reasons.  Employees can choose how they spend their time off, so they don’t have to feign illness to spend a day at the beach.  Employers can track this time off through simple subtraction, instead of having to classify time and calculate deductions across multiple leave banks.  The downside to a single bank is that sick employees will find themselves with fewer vacation days—a real wrench in the gears when a lengthy illness interferes with a planned vacation.

How Can You Set Up an Effective PTO Program?

As long as your PTO policy is applied fairly, you can set the rules!  You’ll just want to set them in a way that ties into business needs (and complies with a few legal caveats, but we’ll get to that).  If you have no model in place for paid time off, then have fun with your blank slate.  But if you’re currently using a dual-bank system of vacation leave and sick leave, solicit feedback from managers and employees about switching to a single-bank PTO system.  You just may find it’s easier for everyone.

That said, to set a PTO program that’s right for your company, start by choosing how many days off employees will receive.  This number may be different depending on employee rank and tenure.  A good way to arrive at this figure is to analyze current time taken by your employees versus the time they’re allotted, and determining how this used and unused time impacts your business operations.

Once you’ve figured out how much time to give to employees, figure out how they will accrue it.  Will PTO be based on the number of hours worked, or will a set number of days be assigned each pay period?  Can employees borrow PTO in advance of it being accrued?  Also determine (in compliance with state laws) any end-of-year rollover or “use it or lose it” policies.

Then, decide how employees must request PTO.  Who must approve a PTO request, and how far in advance must a request be submitted and by what method (a form, an e-mail)?  When you do this, be mindful of any state laws governing PTO taken by exempt versus non-exempt employees.

Finally, outline your new PTO policy clearly in your employee handbook.  You can distribute copies of the policy in a memo to employees, formally notifying them of the changes.  Be sure to have an open door in your Human Resources Department for employees to address questions, concerns, or issues with the new system.  And there you have it—one effective PTO policy!

If you could use a hand examining your current time-off policy or setting up a new one, we at YES! Your Human Resources Solution are happy to help.  As Orange County’s premier Human Resources consulting firm, we have over 20 years of HR experience to help you research, draft, and implement a PTO policy that’s right for your employees and your unique business needs.  Questions?  Visit our website or contact us for a free consultation!