Vacation vs PTO (Paid time off)

We've been using integrated PTO for the last 25 years. It's not a perfect system. It's true that people tend to come in sniffling rather than give up a potential vacation day. But once employees are earning PTO at a decent clip, they are more rational about staying home when they can't be productive at work. To all of us PTO feels closer to the NETFLIX philosophy without granting complete trust. Does NETFLIX have NO people who abuse their free-for-all system? Amazing. P.S. We've been lucky not to have had to deal with lay-offs and large accruals of PTO that need to be paid out.

We cap the accrual of PTO that's allowed to carry to the next year at 20 days, although we have had to inform a few employees that they needed to take extended time off in December to not lose that PTO.

We also have implemented a PTO policy that encompasses sick days, vacation days, personal days all in one. We do not care what the reasons are. In order to not receive incidents, all time off needs to be approved and advance notice given. Call outs for being sick do receive an incident. After so many, the employee is given a verbal then written warning and after a few more - let go. This was instituted several years ago to weed out the abusers. We now have a well oiled staff.

Time off that is more than two days needs six weeks’ notice. At the end of the year, we are allowed to carry over 96 hours. There have been many employees over the years that we’ve had to urge to take time off and then ended up writing off excess untaken hours.

I've been in two firms that implemented PTO policies, but not the back end processes to clearly track.

In the end, each company had to take a series of accruals to account for the variance in the PTO system and expense to date. In response, each had to make sweeping changes to the PTO program which were a train wreck for employee morale.

I agree with Keith that the goal is to keep it a benefit - so whatever the design make sure people understand both the spirit and their responsibility for reporting PTO - then back it up with the processes and procedures to make it simple.

For what it's worth, I've always given my managers the right to give people who have been working long hours a day off without charging PTO. Never had any issues with abuse since we all agreed upon how to best use.

Our company is virtual, everyone works from their home. We have PTO, with additional allowances for Jury duty pay and Funeral leave. 5 days carryover maximum, if you have more and you don't take it voluntarily it is assigned at year end. Every body likes it, much easier to administer and plan for.

Very good points. In application, PTO is usually easier to administer because you are tracking one "pot" of time. And from a payroll perspective, entering time is much more efficient. I haven't seen where people come to work sick anymore under a PTO policy than the other. I have seen a rash of "sickness" when the end of the year approaches and the sick leave is about to disappear because of no carry forward policy.

From a fairness perspective I am also troubled by "use it or lose it" policies as the company benefited from the employee not taking the time off and thus (theoretically) increasing the productivity of the company.

Insightful thread on this topic. I would also add that PTO is "less intrusive" to the employee and echo the earlier comment "pro-employee". As part of business integration, we moved all companies to "use-it-or-lose-it" (where legally possible)and gave the impacted employees 18 months notice to "use" their accrued time-off. As a side note, there is growing attention about downtime in the age of always being connected. Companies should encourage the employees to disconnect and recharge. The impact on productivity will be apparent.

Simon, we've been using PTO for at least 20 years with a "use it or lose it" clause. It has worked out great for us. We are manufacturer with a lot of hourly employees and have not encountered any morale issues. Rarely does anyone lose their PTO. We believe it is critical for people to take off from work and for cross-training. To that end, making people take off ensures others can adapt and fill-in for each other. And from a financial control perspective, I would be leery of those that don't take off. It's amazing what you learn about your operation when some of your key people are out for a week.

I have worked for several companies (all California) that moved from separate buckets to PTO. The points made above about the balance sheet, cash implications are all true. However, we also found that the elimination of the "use it or lose it" problems with sick pay significantly offset those issues. The issue we had was that November and December were peak months and the rush of employees calling in "sick" during those last two months impacted productivity because of gaps in critical departments and significant overtime as people doubled-up to cover for those who were out.
After analyzing the costs, we determined that it was more cost efficient to move to a PTO model, but cap the rollover at 80-120 hours (depending on position). Also we also capped the accruals at 2 years and as Malak noted above encouraged employees to take time off during slower times so that they avoided burnout.

Our debate has focused so far on the accrual process and what happens to the accrual when it gets uncomfortably large. The reason for the accrual getting large is because insufficient time off is being charged against the accrual. In many mid to small size companies, a large number of employees are "working from home" or traveling on sales and support calls outside of the office. When I see an empty office and no PTO claim forms I have to have my suspicions that a percentage of PTO is not being reported.

Yes, I know that managers are supposed to know where and what their reports are doing, and the overall judgment is based on whether the job is actually getting done as and when required, but these are blunt instruments of control compared to the old fashioned daily register of attendance. Does anyone else have this uneasy feeling? And does anyone do any verification of suspected absences that have not been reported, and if so, how?

Simon, I see where you are coming from, but how would you propose to investigate? I am still of the opinion that an engaged manager is the best defense against PTO abuse.

You are correct that the "work from home" trend makes it extremely difficult to determine if employees are working. Technology is going to have to step up to the plate here and give us some systems that can "measure" when someone is working or not.

Aside from the monetary considerations, I prefer to separate sick leave from vacation. For one thing, as others have mentioned, combined PTO may (and often does, in my own experience) lead to employees showing up to work when they really should stay home. Nothing so wonderful as having half your staff sneezing, coughing and wheezing, and operating at well under normal levels of productivity simply because the first person to catch a bad cold or the flu doesn't want to use up his/her PTO time.

Also, I think it is desirable to encourage employees to take real vacations, and I find that often employees are afraid to do so for fear that if they use up their PTO for a vacation, they will be put in a real bind if they later have an injury or illness that keeps them away from work for a week or two.

How do you ensure all managers are enforcing the combined PTO policy. We currently have a separate bucket for personal/sick and another bucket for vacation. We have found that some managers will approve time off as PTO when it should be vacation - and our policy clearly defiines reasons you can use PTO. We want to combine personal/sick with vacation and have one bucket but need some method of auditing to ensure managers are not allowing their employees to take time off and not record anything. Any suggestions.

I find it odd, that having to accrue for the time not being used is viewed so negatively.

Basic finance principals says it's better to accrue for an expense than to pay for it up front (Time Value of Money). Is it a cash outlay when it happens? Sure, but theoretically, it's been a savings the whole time, before it becomes an expense. So any negativity on the liability side is offset by an asset (Cash).

At our company we have both vacation time and PTO time. PTO is use it or lose it. Vacation time we allow up to one week of carryover to the first quarter of the next year with manager approval. System works very well.

Rhonda,
You need to be careful with comp time programs especially if you have hourly employees. Comp time is not recognized and legal generally for hourly employees and if you are in California you can have major issues because overtime is calculated on 8 hour day and not a 40 hour work week. If you allow a person to work 10 hours only pay them for 8 and let them take 2 hours off by working six hours you have shorted them 1 hour pay (two half time premiums) in California. If your comp time crosses pay weeks, you have the same problem in other states. Big problem when this gets discovered by a problem employee, most employees appreciate the flexibility. Also by not having a documented tracking system for comp time, then the state will ask the employees to estimate the hours of comp time and takes their word and not the employers. Unfortunately, it is getting harder and harder to try to do the right thing and what makes since, because the rules have become so restrictive that everyone ends up losing.

This is truly a case of one size does not fit all. Your program has to fit your workforce. We have had to do away with the PTO program and also had to do away with granting all of our sick time on the first day of the year. We have a work force of technicians that operates in all 50 states who have to be at work for us to generate revenues, and it is problematic when some one does not show up as our clients have to prepare for us to come perform our services, if we do not show up at the last minute they are not happy and have wasted time and money. With PTO and granting sick on day one, employees mainly in California would use up all their time in Jan and Feb of each year, unbelievable, and because it was PTO they claimed they were sick so no notice. We have gone back to the old system of having to have vacations approved in advance and sick is accrued monthly. We did implement a program where we pay people for their unused sick time at the end of the year. This rewards the employees who use their benefits properly. We also allow employees who have earned 3 or 4 weeks of vacation to sell back one week a year for extra cash. We limit the buy back to fix number per month and it is first come basis, this keeps everyone from selling back in January to pay Christmas bills.

As discussed, there are several ways to limit the liability from the books. I've always been a fan of separating the two (vacation from sick.) But, I'd also be an advocate for unlimited sick days. Sick people at work threaten the health of others and the company's productivity.

Years ago when H1N1 was a threat, I instilled a policy that anybody with an signs of a fever must stay home home. And, that they would not be charged with sick days. As it turns out, we had an employee with H1N1. Had I not been aggressive in protecting our employees, this could have been much worse.

Couple an unlimited sick policy with a short-term disability policy, and you're workforce will be protected without creating a huge financial burden for the company.

PTO is definitely the best approach. One way to limit liability is to have a limited carryover policy i.e. you are allowed to carry 40 hours of unused PTO over to the next year. This way employees can save time for a big trip, but it does not create an unmanageable liability for the company. The other part of a good PTO policy is to allow a limited negative PTO balance (40 hours with management approval) so that people can take vacations earlier in the year and deal with unanticipated illnesses.

Two things to remember: - (1) your employees are your biggest asset and (2) there is no perfect system. PTO allows for maximum flexibility for employees. However, employees need to take some time off / vacation to recharge their batteries. Have a minimum PTO days taken per year with the remaining PTO used or banked,

One thing that has not been mentioned is the "forced" (encouraged?) multiple day availing of the PTO. The essence of the VL aspect of the PTO is to give the employees some personal time. Some companies I worked with has an "encouraged" minimum 5 day straight availment. This is not only good for the employee but an internal control policy too.

PTO is so much better than vacation & sick time.
Employees will not call in sick just because they feel that their sick days are theirs to use.
They will not waste vacation days