Paid time-off banks give employees flexibility in using their paid leave and are easy to implement. Use these guidelines to determine if a PTO plan is right for your organization.

What happens under your vacation or sick leave policy if an employee needs to stay home with a sick child? Or if another employee wants to take two days off to attend a nonwork-related seminar? Under a traditional policy that separates vacation and sick days, some employees may feign illness to avoid depleting their vacation allowance. With a paid time-off (PTO) bank, you can give employees a set number of paid days a year and allow them to choose how these days will be used.

PTO Defined

A typical PTO plan lumps together all paid days into one bank that allows employees to take a day off for a wide variety of reasons. For example, PTO banks usually allow time off for vacations, illnesses, care of family members, religious observances, marriage, funerals, community service, and other personal business that cannot be taken care of after work. The plan allows employees to choose how many days are used for any of these activities rather than setting a limit on each type of leave. Thus, instead of having 10 vacation days, 5 sick days, and 3 personal days, the employee would have 18 PTO days to use for all of those reasons. Some plans also include holidays as part of the PTO bank.

Like traditional vacation policies, employees generally must get advance approval to take a week or more of continuous PTO days and give 24 hours’ or more notice to take one day off at a time. Most employers also reserve the right to deny or reschedule leave for business needs. Unlike separate vacation and sick leave plans, most PTO plans do not require employees to give a reason for the leave. As a result, these plans generally do not require any medical verification of the need for a day off for illness.

Flexibility, Employee Control Are Main Benefits

Most employees like PTO banks because they have greater choice in how their paid time off is allocated and are not confined to using the time only for vacation and sick leave. In addition, these benefits can be used equally by all employees, even by those who do not have children or rarely use sick days.

PTO plans are appealing to employers since they are easy to implement and can cut down on administrative time. For example, with a PTO bank, HR no longer has to keep track of why an employee is absent, only when. In addition, PTO plans are attractive to prospective employees.

Abuse, Vacation Pay Out Are Among Drawbacks

PTO plans have some disadvantages, however. First, because the distinction between vacation and sick days is blurred, employees are more likely to use these days as extra vacation and may not save paid time off for illnesses that occur later in the year. This can result in employers granting both the paid time off under the plan and additional unpaid time off because of year-end illnesses. Second, since employees generally do not have to explain why they are taking a day off, it is difficult for employers to identify when an employee may be taking time off for a serious health condition that is covered under the Family and Medical Leave Act (FMLA). Finally, any unused time under a PTO plan typically must be paid out at termination in states that require the payment of unused vacation and personal time as final wages due at termination (such as California and Illinois).

Is a PTO Plan Right for Your Organization?

To determine if a PTO plan is right for your organization, consider these factors:

• Analyze absenteeism patterns and costs. If employees are missing days for reasons not covered by your separate vacation and sick leave policies (such as for child care or elder care), a PTO plan may help.

• Consider organizational culture, attitudes. PTO banks work well in organizations that are flexible and give employees more control. Supervisors and top management who want to know exactly why employees are taking time off often will resist PTO plans.

• Consider FMLA compliance. If your organization has difficulty keeping track of FMLA absences because supervisors cannot identify which absences should be counted, a PTO plan may make that problem worse.

• Look at state laws on pay at termination. If your organization has employees in states that require the payment of unused vacation at termination and you do not want to pay out unused PTO days, a PTO plan may not be right for you.

Implementing a PTO Bank

Many employers that have adopted PTO plans feel they provide flexibility, cut absenteeism costs, and give employees more control over their time. If you decide to switch to a PTO bank, here are some tips for implementing the plan. First, determine what types of days should be covered and whether you will enumerate those days or simply give a set number of days to be used as the employee chooses. Next, consider allowing employees to carry over any unused days exclusively as sick days to encourage employees to plan for illness and, possibly, to avoid pay out at termination since most states only require the payment of unused vacation or personal days, not sick days. In addition, ask for medical certification for absences over three days to determine if they should be counted as FMLA leave. Finally, train employees and supervisors about how PTO works and its advantages, focusing on supervisors who may be concerned about losing control over the use of days. These basic steps should facilitate the transition from traditional vacation and sick leave policies to a PTO bank.