Vacation-PTO Accrual Policy Change

We cloned a policy statement that a State of Illinois agency was using internally and it worked well. We gave staff a bank of PTO at the start of the fiscal year that they could use any time during the year (with their supervisor's authorization). The policy release indicated that PTO was technically earned during the year and any use beyond earned accrual would be deducted from an employee's final check at termination.

Once employees got the gist of the program they really liked it. At the end of the fiscal year any PTO balance remaining was zeroed. But as of the first day of the next fiscal year they received a full year's bank.

Most of the staff was salaried and there was relatively little turnover. In our case PTO was vacation and personal time only. Other organizations have been successful including sick time as well.

We made the change last year to PTO combining both Vacation which we previousely accrued and carried over at year-end and sick time which did not carry-over. Total available time in the Calendar Year was unchanged and we introduced a use it or loose it policy with a max one-week carryover. We assess both actual and planned PTO at the quarter with no significant changes in the accrual. We do notice the impact of turnover both voluntary and in-voluntary on the accrual and calculate the value in excess of carryover in our "Cost of Turnover" calculation internally.

We classify PTO time as planned or unplanned (sick/emergencies) with planned time off scheduled in advance and approved by the supervisor/manager. Managers work with staff to consume time thruout the year and maintain productivity in their respective areas. In some cases we benefit with managers/supervisors managing more effectively.

I haven't seen the perfect plan yet, but as we communicate more effectively overall satisfaction seems to correlate with the employees understanding of the program and objectives.

By merging your vacation and sick time accruals you simplify your administration, and most likely reward your healthy employees who never benefitted from sick days, however you are creating a pay-out obligation for the sick days that have been transformed into PTO days. My understanding is that unused PTO days must be paid off when an employee leaves but separate unused sick days are not required to be paid!

We have a use it or lose it policy and test the accrual balance at year end. I think there are pros/cons for both PTO and a separate vacation and sick policies. PTO policies work well in environments where you don't traditionally have problem with absenteeism. They are often welcomed by employees who are not often sick and have access to use their PTO as they like.

I have a very successful client in Naples, FL whose policy has always been to payout unused sick days at $50/day every January. This policy is surprisingly effective and costs the employer little compared to lost productivity.

If you goal is not have an accrual on your balance sheet, then you can easily accomplish this with a PTO policy that is use or lose and no carry over at year end. But be careful what you ask for and what you get. With this kind of a policy you will pretty much insure that people will take all their vacation and sick leave, a people feel they are losing a benefit if not taken. I have always looked at sick leave a not another free day off, but to be used if the employee or child is truly sick, most employees do not view it this way,it is vacation time that does not require preapproval. We find this to be especially true in California and the NE/Mid Atlantic areas. We went to a policy that caps the amount of vacation that an individual can have at any time, this allow the employee to feel that they are not forced to take it, we also allow them to sell back up to one week a year. Alot of employees take advantage of this benefit, we like it because we are billing out the employee and their vehicle at a higher rate then their salary costs. Also we payout unused sick leave for anyone that does not use all of the sick leave during a year. If some one does not use any sick leave then we pay a $250 bonus, on top of the sick pay. We make the payout Jan 15 which help people with their Christmas bills.

So I would evaluate how much time people or using know and if you want to insure that take all the time off. Every business is different.

Anyone know the laws is WI? Can I do "use it or lose it?" within a fiscal year, and
pay it out with prior approval from a "reserve for carry-over" if an exception is approved?

I think PTO is quite problematic. I didn't really like it, it got abused at a previous company. If you have a mix of exempt and non-exempt employees and varying attendance policies for both, then don't do it. You end up with a lot of pain trying to track everyone, and those that are exempt are probably not signing in or tracking their hours. If someone misses two hours for a doctor's appointment but then says they work late the next day to make up for it, and maybe even are exempt and don't really keep track of hours, have fun keeping track of all that. I did it for an organization of 33 and it led to quite a few issues and even some fights.

I like set days much better, especially with a prorated amount for new employees, and flexibility for people to come in late because of appointments as needed. Productivity is ultimately what matters, not attendance.

If you don't track when people work, then why would you track when they don't work? If you let people take off whatever time they need, as long as they get their work done, I don't think you need an accrual. I think most employees will respond positively to that.

I have used scenarios where accrual was only used for portion that would be left carried over to be taken in the next fiscal year, where the accrual was only for what would be paid out at year end in cash or upon termination in cash, and in one case only for those people and jobs whose absences would be filled by either overtime labor costs of others, temp workers as fill ins for person off on vac, consultants fees as costs to fill in for person off on vac, amt company bought a person out of his vacation so as not to take it when he had several weeks accrued more than company could afford to lose him- if the workload was not filled by others on OT or by temps with fees, then no accrual would be used for salaried people whose work would just pile up to be done upon return from vac or done by others during regular hours without extra ot costs

Use it or lose it policies are good for the companies balance sheet but bad for employees. If you want to negatively impact employee morale, institute it. They will see it as a take away not matter how you try and convince them it is a good idea.

However, you need to get some legal advise on instituting a plan. More than likely, on the day you start the use it or lose it plan, you will have to pay out the existing accrued balances, in cash.

Also, if you institute a cap on time off, you will need to pay out the overage to anyone accrued over the cap on day of implementation.

Finally, if your employees request time off and you deny it, you will probably be sued for the amount that the employee "lost" at the end of the year.

My advice is to not do it. Also, be ready for a DOL audit after the first person quits and wants some additional cash. Unless you have done everything to not disadvantage your employees. Might want to get a good ERISA lawyer also as vacation plans can be considered covered by ERISA.

This is the proverbial minefield.

In California, we are allowed to carry-over unused vacations (only up to a certain days) to the next year for employees. We have the traditional sick days and vacation days separate. Last year, our state implemented mandatory sick days. We were going to convert to PTO but it would mean more sick days to accrue if we combine vacation and sick days together (3 sick days per year as opposed to accruing them per pay period - 6 to 7 days total). If an employee gets terminated or resigns, we are obliged to pay out unused vacation but not sick days. We implemented a vacation cap where they cannot accrue more than what is unused and this was communicated a year in advance to all employees to schedule their time offs accordingly and would not be surprised once the policy takes effect in January.I would check the costs vs benefits of PTO versus traditional vacation & sick days if it make sense and communicate this to the employees in advance before implementation - 6 months or a year in advance for them and yourself to be prepared.