Vacation vs PTO (Paid time off)
In recent years I have seen a number of companies switch from having seperate vacation, sick, and personal time off to an integrated PTO system. Regardless of the reason for not attending work, the employee is charged against his or her acumulated PTO accrual.
While there may actually be a reduction on the aggregate days allowed as PTO, the main motivator appears to be to reward the healthy or conscientious employees who never take a sick or personal day, and provide a deterrent to those that habitually manage to use every single hour of sick time accrued.
Now I have come across a company wanting to change back from PTO to separate vacation and sick plans. Their reason is that employees were so motivated to avoid sick and personal absence, because they could add to their vacation accrual, that the Company saw a significant increase in its vacation accrual overhang. While vacation was a legal carryforward entitlement, sickdays were use it or lose it and there was no carry forward entitlement.
I would be interested in hearing any views and comments from those with experience of the change to PTO (or back) and what evidence there is to suggest that sick day entitlements are commonly abused
Answers
Company: PC Helps Support, LLC (former)
Having a combined PTO pool also incentivizes people to come to work even when they are sick & contagious, because they want to save their days in order to take a 3-week vacation.
Another advantage of multiple PTO buckets is that you can have scheduling rules for each. Sick/Personal days need no advance approval, but vacation time may require the manager's approval at least a few weeks in advance. Vacation can be scheduled in advance for the day before/after a holiday (Memorial Day, 4th of July, Labor Day), but sick/personal days cannot, in order to avoid having everybody call in sick on the 5th of July.
A downside of multiple PTO buckets is that the people who use up all of their sick days tend to constantly go to their bosses to get approval to use vacation time for their most recent day off due to illness. If your plan allows managers to make exception such as this, a burden is put on those managers.
Company: Muehlhan Surface Protection Inc.
We have implemented a PTO policy that encompasses sick days, vacation days, personal days, etc. all in one - that is, we do not care what the reasons are, as long as they do not exceed the given number of PTO days. Also, we have a "use it or loose it" policy - no carry over to the next year.
Company:
A significant disadvantage of PTO is that you have to accrue it monthly, so it hangs on your books, and then you have to pay it out when you separate from the employee (in CA and some other states, although I can't recall which). This means that if you do a layoff, you not only pay severance (if you're doing that) but you have to pay off PTO which can be a big slug of $. This is a major issue if you are doing a layoff expressly to save your company money, and here you go writing a big check to all of your laid off employees. Further, I know that many employees do their darndest to amass PTO (up to your max accrual amount) simply so that they have a cushion if they are laid off or even if they quit - doesn't matter which. So watch out for your max accrual b/c it's just a bank account waiting to be funded for employees who separate from the company.
The rules vary by state so check yours closely. More here: http://employeeissues.com/paid_time_off.htm and for sure ask your lawyer for the "real" advice, b/c you can be sued and, depending on your position in the company, help personally liable for certain compensation issues.
Company: AKT LLP CPAs and Business Consultants
I agree with Mark that CA rules can make a PTO bank a huge liability. In CA once you have given someone PTO you can never take it away (ie use it or lose it doesn't apply). We have had to change our policy for CA so that once they hit the max accrual they just stop accruing PTO instead getting it taken away at a later date.
One thing to note in CA you don't have to pay out Sick leave when you separate from the employee (check with the state because rules could have changed since last I looked). Therefore if you have a higher staff turnover it might be better to keep them seperate so you don't have to pay out that balance along with any accrued vacation.
Either way you go you have advantages and disadvantages for people who play the system. The key is to manage the expectations of what is and isn't acceptable ways to use the PTO. Then enforce those expectations.
Company: Lyris, Inc.
Alas, I appreciate that our community is one of Finance and Accounting professionals, but think as the CEO should think -- Step back and remember that the single most valuable asset in any company are the people -- your company needs to provide competitive benefits AND TREAT the employees as mature professionals. THINK NETFLIX -- they don't track PTO, vacation, sick, or any other -- they expect their employees to do the right thing, get their jobs done, and they can take as much time off as they need. Oh, and by the way, guess what? No accruals on the books!
Think pro-employee, treat them right and with respect, but yes, hold them accountable, and lo and behold -- EVERYBODY WINS.
Company:
We've been using integrated PTO for the last 25 years. It's not a perfect system. It's true that people tend to come in sniffling rather than give up a potential vacation day. But once employees are earning PTO at a decent clip, they are more rational about staying home when they can't be productive at work. To all of us PTO feels closer to the NETFLIX philosophy without granting complete trust. Does NETFLIX have NO people who abuse their free-for-all system? Amazing. P.S. We've been lucky not to have had to deal with lay-offs and large accruals of PTO that need to be paid out.
Company: PGAMA
We cap the accrual of PTO that's allowed to carry to the next year at 20 days, although we have had to inform a few employees that they needed to take extended time off in December to not lose that PTO.
Company: Dream World Intl,, current
We also have implemented a PTO policy that encompasses sick days, vacation days, personal days all in one. We do not care what the reasons are. In order to not receive incidents, all time off needs to be approved and advance notice given. Call outs for being sick do receive an incident. After so many, the employee is given a verbal then written warning and after a few more - let go. This was instituted several years ago to weed out the abusers. We now have a well oiled staff.
Time off that is more than two days needs six weeks’ notice. At the end of the year, we are allowed to carry over 96 hours. There have been many employees over the years that we’ve had to urge to take time off and then ended up writing off excess untaken hours.
Company: eCullet Incorporated
In California, it isn't legal to cap carryovers for PTO already earned by an employee, as the State takes the position that it is a recapture of compensation. My companies typically deal with this by provisions in the plan that stop accrual of PTO for an employee once they have accumulated 2 years' worth of hours at their current accrual rate, and restart it with usage bringing the accrual below that amount.
Company: Leader Enterprises
My understanding of CA laws led me to believe that you had to accrue vacation and pay out upon termination as it was earned, similar to PTO? Do you know if this is the case?
Company: Trinity Group, BlueGold, Genergy, Wellcount
Yes, Mark, you are right. CA does require whatever is accrued to be paid out, either at the separation or within a very short period of time (days).
One more reason we've re-located nearly every function out of CA. (Forgive that; CA was a great place, livable if less government.)
Company: EarthClean, SinuGenix, & Fitness Formulary
I've been in two firms that implemented PTO policies, but not the backend processes to clearly track.
In the end, each company had to take a series of accruals to account for the variance in the PTO system and expense to date. In response, each had to make sweeping changes to the PTO program which were a train wreck for employee morale.
I agree with Keith that the goal is to keep it a benefit - so whatever the design make sure people understand both the spirit and their responsibility for reporting PTO - then back it up with the processes and procedures to make it simple.
For what it's worth, I've always given my managers the right to give people who have been working long hours a day off without charging PTO. Never had any issues with abuse since we all agreed upon how to best use.
Company: Binary Tree Inc.
Our company is virtual, everyone works from their home. We have PTO, with additional allowances for Jury duty pay and Funeral leave. 5 days carryover maximum, if you have more and you don't take it voluntarily it is assigned at year end. Every body likes it, much easier to administer and plan for.
Company: AlphaMac Resources, Inc.
Very good points. In application, PTO is usually easier to administer because you are tracking one "pot" of time. And from a payroll perspective, entering time is much more efficient. I haven't seen where people come to work sick anymore under a PTO policy than the other. I have seen a rash of "sickness" when the end of the year approaches and the sick leave is about to disappear because of no carry forward policy.
From a fairness perspective I am also troubled by "use it or lose it" policies as the company benefited from the employee not taking the time off and thus (theoretically) increasing the productivity of the company.
Company: KDR Designer Showrooms
Excellent discussion. We've been considering switching from vacation/sick accruals to PTO, so this has given me a lot to think about. And, once again, appreciate that I am not working in California...
Company: Proformative, Inc.
But we do have nice weather.
Company: ERI Economic Research Institute
Insightful thread on this topic. I would also add that PTO is "less intrusive" to the employee and echo the earlier comment "pro-employee". As part of business integration, we moved all companies to "use-it-or-lose-it" (where legally possible)and gave the impacted employees 18 months notice to "use" their accrued time-off. As a side note, there is growing attention about downtime in the age of always being connected. Companies should encourage the employees to disconnect and recharge. The impact on productivity will be apparent.
Company: Triad Packaging Design & Display
Simon, we've been using PTO for at least 20 years with a "use it or lose it" clause. It has worked out great for us. We are manufacturer with a lot of hourly employees and have not encountered any morale issues. Rarely does anyone lose their PTO. We believe it is critical for people to take off from work and for cross-training. To that end, making people take off ensures others can adapt and fill-in for each other. And from a financial control perspective, I would be leery of those that don't take off. It's amazing what you learn about your operation when some of your key people are out for a week.
Company: RMM Accounting
I have worked for several companies (all California) that moved from separate buckets to PTO. The points made above about the balance sheet, cash implications are all true. However, we also found that the elimination of the "use it or lose it" problems with sick pay significantly offset those issues. The issue we had was that November and December were peak months and the rush of employees calling in "sick" during those last two months impacted productivity because of gaps in critical departments and significant overtime as people doubled-up to cover for those who were out.
After analyzing the costs, we determined that it was more cost efficient to move to a PTO model, but cap the rollover at 80-120 hours (depending on position). Also we also capped the accruals at 2 years and as Malak noted above encouraged employees to take time off during slower times so that they avoided burnout.
Company: Aargo Inc.
Our debate has focussed so far on the accrual process and what happens to the acrual when it gets uncomfortably large. The reason for the accrual getting large is because insufficient time off is being charged against the accrual. In many mid to small size companies, a large number of employees are "working from home" or travelling on sales and support calls outside of the office. When I see an empty office and no PTO claim forms I have to have my suspicions that a percentage of PTO is not being reported.
Yes, I know that managers are supposed to know where and what their reports are doing, and the overall judgment is based on whether the job is actually getting done as and when required, but these are blunt instruments of control compared to the old fashioned daily register of attendance. Does anyone else have this uneasy feeling? And does anyone do any verification of suspected absences that have not been reported, and if so, how?
Company: AlphaMac Resources, Inc.
Simon, I see where you are coming from, but how would you propose to investigate? I am still of the opinion that an engaged manager is the best defense against PTO abuse.
You are correct that the "work from home" trend makes it extremely difficult to determine if employees are working. Technology is going to have to step up to the plate here and give us some systems that can "measure" when someone is working or not.
Company: TSI-Transforming Solutions, Inc
Scott: network monitoring tools, application audit trail logs, email log and traffic reports can all tell you today if someone was interacting with company data. For example, if my AP manager stays home to work, and I see zero logon under his/her userID to the accounting system that day, I am likely to be wary of that. However, you run the risk of a big brother accusation. I prefer your engaged manager approach.
PTO abuse can often be part of a bigger problem in that person's performance, interaction and behavior.
Company: RMM Accounting
All those tools are useful for tracking work, but before you get to that point, the most important part is the manager's decision in allowing employees to work out of the office in the first place. If you do not trust the employee's work ethic, then he/she should be in the office.
Company: Self
Aside from the monetary considerations, I prefer to separate sick leave from vacation. For one thing, as others have mentioned, combined PTO may (and often does, in my own experience) lead to employees showing up to work when they really should stay home. Nothing so wonderful as having half your staff sneezing, coughing and wheezing, and operating at well under normal levels of productivity simply because the first person to catch a bad cold or the flu doesn't want to use up his/her PTO time.
Also, I think it is desirable to encourage employees to take real vacations, and I find that often employees are afraid to do so for fear that if they use up their PTO for a vacation, they will be put in a real bind if they later have an injury or illness that keeps them away from work for a week or two.