Paid time off (PTO): Everyone loves it. Dealing with paid time off and employee time-tracking as an HR manager? Not so much.
That’s why employers and HR managers have a tough decision when it comes to choosing the best PTO policy for their business – if any at all. In fact, under the federal Fair Labor Standards Act (FLSA), employers are not required to offer paid time off to employees, but many still choose to do so.
“88% of organizations believe it is necessary to offer some type of paid time off program to be competitive in the labor market,” according to a 2016 WordatWork report on PTO.
Why? Because they believe that offering paid time off will:
- Encourage employees to rest and rejuvenate
- Improve employee attraction
- Satisfy employee paid time off expectations
Unfortunately, the decision to offer PTO isn’t as easy as saying “Yes, let’s do it.” Employers have to choose between a variety of paid time off policies available and determine what’s best for their business.
To help, we’ve highlighted the pros and cons to traditional, flexible, and unlimited PTO:
#1: Traditional PTO
As the name states, this is the bread and butter of PTO policies, which offers separate allowances for sick days, vacation days, and personal days.
- The Good: Employee tenure at a company often dictates paid days off, rewarding employees for sticking with a company.
- The Bad: Since time-off days are divided into sick, vacation, and personal days, there’s a risk of inaccurate reporting for type of time off.
What’s more, as employees reach their max allocated days, unscheduled absences may occur, causing inefficient workflows and potential distrust. A traditional time off policy also requires strict request/approvals and employee time-tracking, which can be become tedious and complex as a company grows its employee base.
#2: Flexible PTO (or PTO Bank-Type System)
With a flex PTO policy, paid time off isn’t broken up into vacation, sick, or personal days. Instead, employees receive a lump sum of PTO to use at their discretion, whether it’s for their kid’s back-to-school event, doctor’s appointment, or a week-long vacation. The only requirement is that they get their requests approved by their manager.
- The Good: Flex paid time off is great for companies that want to offer their employees flexibility to spend time off however they’d like. A Flex PTO policy is ideal for working parents who may need to take an occasional day off for a school function, or employees who celebrate holidays that are not included on the federal holiday calendar.
- The Bad: With this type of policy, employee time-tracking is easier to manage, but HR managers will still need to determine accrual rates, caps, limits, and payout.
#3: Unlimited PTO
This is growing in popularity among tech companies, but is still a rare offering across the country with only 1% of organizations offering unlimited paid time off, according to the WorldatWork report.
- The Good: With unlimited policies, employees can take time off whenever they want, without worrying about reaching any caps. Of course, they’ll still need to get their manager’s approval. This also eliminates the expense of accrued time-off. When employees end employment with the company, there’s nothing to pay out.
- The Bad: Unlimited PTO policies can be difficult to implement for certain workers, like hourly employees. What’s more, without an allocated number of time off, some employees may be fearful of taking days off.
The transition from an accrual model to an unlimited model may also be complex, particularly for employees who have accrued a lot of days off. So, it’s critical for employers and HR managers to plan the payout process prior to transitioning to an unlimited model.
As you can see, there are pros and cons to each PTO policy. It’s up to you to evaluable your business and employee needs to understand what type of policy is best. For more information, download The Ultimate Guide to PTO.