As businesses start to focus more and more on providing non-salary benefits for their employees, to retain the best talent and keep them happy, one of the most popular perks that are being offered is paid time off (PTO).
PTO can come in different forms, but the basic premise is that employees are given a certain number of days per year that they can take off from work for any reason, without having to use vacation time or personal days.
Some companies have very generous PTO policies, offering their employees upwards of 30 days off per year. Others are more stingy, only offering 10 days or less.
There is no right or wrong answer when it comes to how much PTO to offer, but there are pros and cons to both sides that should be considered before making a decision.
Below, we will examine:
- Why PTO is important
- What a PTO policy looks like
- How modern policies have evolved
- The pros and cons of a PTO policy
- And the best policies for various enterprises
Ready to take some time off? Let’s get started.
What is PTO, and why is it important?
First, let’s break down what PTO is, and some of the common types.
PTO, or paid time off, is a type of employee benefit that allows employees to take time off from work for any reason, usually with no questions asked. PTO is different from vacation time and personal days in that it’s not designated for a specific purpose -employees can use it however they see fit.
This kind of flexibility is important. In 2021, a survey by LinkedIn found that work-life balance was the thing that mattered the very most to job seekers, even ahead of compensation.
If you want to attract the best candidates and keep them, PTO is a great way to show that you value their time and want them to have a good work-life balance.
What is a PTO policy?
A PTO policy is a set of guidelines that dictates how an employer’s PTO program works. It will outline how many days off employees are given per year, how those days can be used, and any blackout dates or restrictions.
A typical PTO policy might look something like this:
- Employees receive 10 days of PTO per year.
- PTO can be used for any reason, including vacation, personal days, sick days, or mental health days.
- PTO can be taken in increments of 1 day, ½ day, or 4 hours.
- PTO must be requested in advance and approved by a manager.
- Blackout dates are from December 23rd to January 2nd.
This is just an example – every company’s PTO policy will be different based on their needs and the needs of their employees.
Usually, these are in either incremental or lump sum plans.
An incremental PTO plan is one where employees receive a certain number of days off, but they are earned throughout the year. For example, an employee might get 2 days of PTO per month, for a total of 24 days per year. This type of plan is often used in companies where vacation time is capped at a certain number of days.
A lump sum PTO plan is one where employees are given a certain number of days off all at once, usually at the beginning or end of the year.
For example, an employee might receive 10 days of PTO on January 1st, to use however they see fit throughout the year. This type of plan is often used in companies where vacation time is not capped.
Modern PTO policies
In the modern marketplace, companies have realized that the antiquated “you can have a few days off every year” wasn’t cutting it.
Instead, companies are starting to offer unlimited PTO. This means that employees can take off as much time as they want, without having to worry about accruing vacation days or using up all their PTO.
The idea behind unlimited PTO is that it gives employees the freedom and flexibility to take the time off they need when they need it. And studies have shown that this kind of policy can lead to happier and more productive employees — and importantly, not many who take advantage of the system.
If you’re considering implementing an unlimited PTO policy, there are a few things to keep in mind. First, it’s important to have a clear and concise policy in place that outlines what is and isn’t allowed.
For example, you might want to stipulate that employees need to take at least 2 weeks off at a time, or that they can’t take more than 4 weeks off in a row.
Second, you’ll need to make sure that your managers are on board with the policy and that they’re comfortable managing employees who have more flexible schedules. And finally, you’ll need to be prepared to deal with the occasional abuse of the system - but this is something that can happen with any PTO policy, not just unlimited PTO.
Pros and cons of a PTO policy
Let’s look at the three policies we’ve mentioned so far – incremental, lump sum, and unlimited - and discuss some of the pros and cons of each.
- Employees have an incentive to stay with the company longer to accrue more PTO.
- It encourages employees to take less time off since they know that they won’t have as much available if they leave the company.
- It’s easier to budget for and manage since you know exactly how many days each employee will have available.
- Employees who have been with the company for a long time may feel entitled to more PTO than newer employees, and this can lead to jealousy and resentment.
- If an employee has a family emergency or needs to take an extended leave for personal reasons, they may not have enough PTO available and will either have to use vacation days or go without pay.
- Employees may be reluctant to take any time off, even when they’re sick or need a mental health day because they don’t want to use up their PTO.
- Employees have the flexibility to take time off when they need it, without having to wait to accrue more.
- It’s easier to manage from a budgeting perspective since you know exactly how much PTO will be taken each year.
- It encourages employees to take time off when they need it, instead of hoarding their days for a rainy day.
- Employees may feel like they need to take all of their PTO at once, to get the most value out of it.
- If an employee leaves the company, they may be able to cash out their PTO, which can be a significant cost to the company.
- There is no incentive for employees to stay with the company longer since they will have the same amount of PTO regardless of how long they stay.
- Employees feel appreciated and valued.
- Helps with employee retention.
- Attracts top talent.
- Increases productivity and creativity.
- Decreases stress levels.
- Reduces the need for micromanagement.
- Gives employees a sense of control over their time and workloads.
- Can be abused if not managed properly.
- Not all employees will use their PTO wisely or in a way that benefits the company.
- Some employees may feel entitled to take advantage of the policy.
- It may result in less productivity overall if employees are constantly taking time off.
Best PTO policy for exempt employees
While it will be different for every company, some general rules of thumb can be followed when crafting the best PTO policy for your business.
Exempt employees are those who are not entitled to overtime pay. They are typically salaried workers who perform executive, administrative, or professional duties, and they make up the majority of the workforce in the United States.
If all of your employees are exempt, you may want to consider
- Offering a set number of days off per year, regardless of how long the employee has been with the company. This ensures that everyone is treated equally and that no one feels like they are being penalized for taking time off.
- Allowing employees to carry over any unused PTO days into the next year. This way, they don’t feel like they have to use all of their days or lose them, and they can save them up for a longer vacation.
- Giving employees the option to buy additional PTO days. This is a great perk for those who want to take more time off, and it can also be used as a retention tool for key employees.
Best PTO policy for a small business
If, on the other hand, you are running a small business with a limited number of employees, you may want to tailor your PTO policy to be a bit more flexible.
Instead of offering a set number of days off per year, you could allow employees to take as much time off as they need, within reason. This encourages them to take the time they need to recharge and prevents them from burning out.
You could also institute a “use it or lose it” policy, where any unused PTO days are forfeited at the end of the year. This motivates employees to take time off when they need it, rather than hoarding their days for a later date.
While it may seem counterintuitive, forcing your workers to take time off can often have a very positive effect on their wellbeing.