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3 Types of Paid Time Off Policies (+How to Choose the Right One)

Jen Meza
Jen Meza  |  September 24, 2019

While legal requirements vary by location, when it comes to offering your employees paid time off, maintaining a PTO policy is absolutely necessary for companies that are looking to attract and retain top talent.

However, with many of today’s employers offering unlimited PTO as a top workplace trend in a dizzying array of unusual perks, it can be hard to prioritize which policy is the right one for your organization.

Which time off policies are most attractive to the candidates you’re looking to hire? How can you give employees the time they need to recharge while ensuring business needs are met? 

Types of PTO policies – how to choose

Whether you’re a tech startup, a retail business, or a non-profit organization, here’s what you should know about choosing the right paid time off policy for your company. First, let's take a look at what your choices are when it comes to corporate time off packages.

Before selecting the policy that’s right for your company, it's important to  look at the options available. 

1. Traditional time off policies

Traditional time off policies give employees an allotted set of paid time off for specific categories, like vacation, sick days, and personal days.

These allotments may be offered as days or hours off under each category and can be replenished each calendar year or on an employee’s work anniversary. Many employers incrementally increase time off for employees who stay with the company over a long period of time. 

Pros of traditional time off policies: 

Accurately measure how much time employees are taking and for what purposes
Retain top talent by offering more PTO for employees with longer tenures
Provides attendance information for resource and workforce planning 

Cons of traditional time off policies: 

Hours spent tracking and reporting PTO may be a costly administrative burden
Unused PTO payouts can be costly at the end of each year or when employees resign 
May not be attractive to job seekers who value work/life balance and don’t see their time divided into categories like ‘sick’ and ‘vacation'

2. PTO banks

Similar to traditional time off policies, PTO banks offer employees an allotted set of paid time off for the year. However, this type of policy groups days off into one “bank,” where employees can take time off for any purpose, with no delineation between sick days, vacation days, or personal days.

This option is a good choice for organizations that want to cut back on the administrative burden of tracking PTO while still offering employees a set amount of days off. 

Pros of PTO banks: 

Less administrative burden for HR teams, managers, and employees
Gives employees clarity on the number of days they can take, with flexibility in how to use them
Provides attendance information for resource and workforce planning

Cons of PTO banks: 

Unused PTO payouts can be costly at the end of each year or when employees resign
Fewer details to track means less insight into PTO patterns and trends

Unlimited PTO

A growing employer trend is unlimited PTO. It allows employees to take time as they need time with no set number of allotted days.

Whether they’re headed to a spring break trip or need a day off for parent-teacher conferences, this option offers employees the flexibility to take time away from the office with minimal administrative burden.

Often, companies that adopt this policy don’t require employees to track or report their days off to HR or other leadership, and time off approval is at the discretion of each individual employee’s manager.

This trend is especially popular in tech and startup companies that don’t have the HR infrastructure or bandwidth to manage a tracked and accrued time off policy. 

Pros of unlimited PTO: 

Shows employees that they are trusted to take the time they need without strict guidelines
Focuses employee-manager conversations regarding time off on job performance and work output
Lets sick people stay home rather than worry about using a day of PTO
Minimizes paperwork, giving managers and HR teams more time to focus on other business needs
Attractive to job seekers 

Cons of unlimited PTO: 

Studies show that employees take less time off under an unlimited PTO plan
Team members with longer tenure are not rewarded for their loyalty
Can be unfair or subjective depending on individual manager preferences and likelihood to approve PTO
Limits the ability to do resource planning or track patterns in behavior

Choosing the right time off policy for your business

Selecting the right PTO policy for your organization starts with asking yourself important questions about business and employee needs. Below are the most important things to consider when choosing a paid time off policy for your organization.

Where is your business located?

Many cities, and some states, maintain their own laws around paid time off – especially when it comes to sick time. This is important when considering the kind of time off policy to use in relation to where your workforce is.

Do you have employees in cities that require a certain number of paid sick days? Do you have a global workforce and need to consider different PTO policies in different locations. Always consult state and local laws before committing to a paid time off plan.

What type of business do you have?

The PTO policy you choose can vary greatly depending on what type of company you have. When it comes to workforce planning, think about which PTO policy would best serve your business needs.

For example, if you’re a construction company or restaurant with an hourly workforce, you likely can’t offer a paid time off plan that’s not tracked or accrued. However, if you’re a tech startup, unlimited PTO is much more possible due to the collaborative nature of the work, as well as the ability to work remotely.

Should you offer different time off policies for different roles?

Depending on the types of employees at your organization, you may choose to offer different paid time off policies for different divisions or roles.

For example, retail companies may choose to offer different PTO plans for corporate employees versus in-store managers. You may also want to consider offering more time for employees with longer tenure. A more generous PTO policy for long-term team members may be a compelling incentive to increase retention.

Best practices when choosing a time off policy

No matter what paid time off policy you select for your organization, here are a few tips to maximize its effectiveness.

Set expectations for tracking and reporting

Establish boundaries for how employees request and track their time off. 

Create formal guidelines that cover questions like:

  • How many days/weeks notice must employees give before they take time off?
  • Is there a maximum number of days off employees can take at a time?
  • Who needs to approve time off requests? Managers? HR?
  • Can employees cash in their PTO days at the end of the year or when they leave the company? 
  • Do unused PTO days roll over into the next year?

Give employees the tools they need to succeed

Will you require employees to report their time off using a central database or PTO tracking software? Make sure employees know how to access and use the software, and how to work with their manager or the HR team if they need to seek time-off approval. 

Establish a chain of command

When employees take time off, it can place an especially large burden on one-person teams who don’t have someone to cover for them.

Make sure these teams feel empowered to ask for time away from the office by establishing a priority list of tasks that still need to happen even during PTO. Decide who is responsible for taking care of these tasks when each team member is out of the office.

Set company holidays

While paid time off days are generally at the employee’s discretion, most employers have a set list of company holidays when the office will be closed.

If your business is in the United States, consider adopting the federal holidays calendar for your own organization and supplement with SHRM’s list of standard paid holidays. If you have a global workforce, consider what other holiday schedules you may need to consider based on local culture.

Consider how you will handle FMLA

When deciding your paid time off policy, be sure to consider how your company will treat time off that falls under the Family and Medical Leave Act.

While this federally-mandated leave is unpaid, the law permits an employee to elect to use or the employer to require the employee to use accrued paid vacation, sick, or family leave for some or all of the FMLA leave period.

Some companies design a paid FMLA policy, and some chose to break out different types of leave under that policy – such as maternity or parental leave plans. Whatever makes sense for your business, be sure to include FMLA time in your paid time off policy design. 

Document your paid time off policy

Make sure everyone knows and understands your organization’s paid time off policy — from leadership, to employees, to potential new hires.

Advertise your PTO package as part of your employee benefits on your company career page, and include detailed guidelines in your employee handbook. Making your PTO policy easily understandable and accessible will help your team avoid confusion and reporting errors long-term. 

Conclusion

No matter the paid time off policy you choose for your company, it’s important to factor in your business needs, consider your employees’ well-being, and think about how your PTO plan fits into the rest of your employee benefits offering. 

While you're considering the right PTO offering for your employees, browse top-rated time and attendance software to keep employee time off on track. 

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Jen Meza
Author

Jen Meza

Jen Meza is VP of People at Yello, overseeing people operations, recruiting, and office management. Yello provides the leading campus recruitment platform and premium recruitment operations solutions for enterprise and fast-growing companies, helping employers build strong brands and hire top employees while maximizing ROI and driving hard cost savings.