How Much Paid Time Off (PTO) Is Enough?

Paid time off has become one of the most important benefits job seekers and current employees value. However, determining the right amount of PTO to offer to attract quality job seekers and retain your current workforce is a delicate balancing act.

According to the Bureau of Labor Statistics (BLS), the average amount of PTO in private businesses is 9.7 days after employees complete one year of service. This does not, however, include paid holidays or sick days. Many organizations have now combined non-company holidays into one PTO allotment, such as offering 10-15 days to cover vacation, days off, and illness. Similarly, a review of timesheets by QuickBooks showed employees get 10.7 days of paid vacation on average.

Why PTO matters

PTO matters in multiple ways, including retention, recruiting, mental health, and performance.

Retention

for every 40 hours of free time an employee takes, the time they stay with their current employer grew by 8 months.

A study by EY, formerly Ernst & Young, reported that for every 40 hours of free time an employee takes, the time they stay with their current employer grew by 8 months. Offering PTO and ensuring employees use it increases loyalty and retention. By the way, that same study also showed that for every 10 hours of PTO an employee takes, the average performance review is 8% higher. Not only do you get employees to stick around longer, but their work improves, too.

Recruiting

PTO can be a powerful tool in recruiting top talent or a hindrance depending on your policies. How important is it? 58% of workers say they would accept lower pay if they could get more time off.

Managing stress and burnout

When employees are feeling overwhelmed or burned out, they aren’t operating at peak performance. According to the American Psychological Association (APA), burnout is a serious problem in business with nearly 8 in 10 workers reporting negative impacts from stress on the job.

These impacts manifest themselves as a lack of engagement, motivation, and effort. When employees are burned out, it produces:

• Cognitive weariness
• Emotional exhaustion
• Physical exhaustion

Stepping away from the stress and recharging occasionally is crucial to mental health and performance.

PTO best practices

The PTO policies you establish play an important role in your company culture, which is key to productivity.

Examine your current PTO policies

To determine the right amount of PTO to offer, you will want to evaluate your current policies. Start by asking these questions:

• How much PTO do you currently offer?
• Are you offering enough PTO for your team members?
• Do employees use their paid time off?
• Are any use restrictions fair to employees?
• Are your PTO policies equitable for all employees?

Companies should be tracking usage against policies and evaluate them regularly to make sure they are offering competitive benefits that employees value.

You can learn more about evaluating your PTO policies and different options by reading our PTO Guide: Everything You Need to Know to Create a PTO Policy for Happy and Engaged Employees.

Flexible PTO policies

Flexible PTO policies help accommodate individual employee situations. For example, not everyone celebrates the same religious holidays. Many companies have expanded the use of PTO to cover more than just vacation and sick time. This allows personal days to be used for mental health reasons, handling family matters, or any variety of reasons without workers feeling guilty about time away from work.

Unlimited PTO

There are certainly pros and cons of offering unlimited PTO, but it’s a growing trend, especially among new companies or startups.

Pros:

• Easier for HR departments
• Can be cost-efficient by reducing unused vacation time payouts
• Attractive tool for recruiting new employees
• Focusing work on results rather than appearances

Cons:

• Potential for abuse: Employees taking advantage of excessive PTO
• Potential for abuse: Managers that punish employees for taking time off
• Less regulation, which could lead to unexpected staffing shortages
• Does not provide higher levels of PTO based on tenure

Interestingly, a study of companies with unlimited PTO showed that the average employee took 13 days off a year — fewer days off than those with traditional PTO plans.

Floating holidays

Not all workplaces can shut down completely when there’s a holiday. Some companies offer floating holidays as part of their benefits plan. This works well for diverse employees who may value different holidays and allows those who do have to work on holidays to take other days off to compensate.

PTO carryover vs. use-it-or-lose it

Some companies are allowing their workers to carry over a limited amount of unused paid time off to the following year. While there’s significant value in your employees taking time off, there are sometimes business reasons that interfere with using all the vacation time. Some organizations also allow employees to buy or sell PTO.

Other PTO ideas

Organizations have become increasingly creative in how they define PTO policies, especially in small businesses that struggle to attract and retain employees. If you’re looking for more ideas, consider these 5 examples of PTO policies from other businesses.

How to determine the right ratio of PTO for your organization

The big decision comes in finding the right balance for your organization. You want to be fair to your employees and create an environment that values the work-life balance. You want to be competitive in attracting employees and provide a benefits package that encourages employee retention. However, you also have a business to run.

While the decision of how much PTO to offer is up to you, it’s a smart idea to benchmark other businesses in your industry, especially your competitors. Making sure you remain competitive with your compensation and benefits is crucial, especially in today’s tight labor market.

No matter what you ultimately decide, make sure your policies are clear and consistently applied across your organization.

it’s a smart idea to benchmark other businesses in your industry, especially your competitors. Making sure you remain competitive with your compensation and benefits is crucial, especially in today’s tight labor market.

Before making any changes, get expert help

Besides federal laws, different cities and states have different regulations regarding vacation time, sick time, and time off. It can get complex, especially if you have remote workers or locations in multiple jurisdictions.

Before you adopt a new PTO policy or make any changes to your current policies, you will want to consult with your HR experts and legal team.