Vacation vs PTO (Paid time off)

Simon Westbrook's Profile

PTO vs Vacation 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 plans for vacations and sick days. Their reason is that employees were so motivated to avoid sick and personal absence, because they could add to their vacations accrual, that the Company saw a significant increase in its accrual overhang.  While vacations are a legal carryforward entitlement, sick days 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

Member's Profile

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.

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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.

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I found some other free resources on Proformative you might want to take a look at.

A free white paper titled...

"10 Principles For Building An Effective Human Capital Plan:"

http://www.proformative.com/whitepapers/10-principles-building-effective-human-capital-plan

You might also get some value from Proformative's free Accounting Resources Guide:

http://www.proformative.com/resources/accounting-resources-guide

The discussion is about which is better for employer and employee. Super interesting.

Enjoy!

Best... Sarah

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Proformative Advisor
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Just like Ercih, we had a loose it or use it policy. Made end of year accruals fast and easy (there were none).

Vacations need to be scheduled, and those in Accounting needed to take all their vacation (week at a time) during the year. Others could take it whenever they felt.\the need.

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Member's Profile

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. 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.

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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.

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Don't forget that your PTO bank will inflate along with your salary increases.

I've always banked as much PTO as possible because, every time I received a 5% raise, the dollar value of my PTO increased accordingly. And, it was tax free....at least until I cash it out or use it.

Until we changed some payroll procedures, this little factor of deferred time off hit home at year end every year when I had to adjust the entire compensated absences liability accrual to reflect the then current rates of pay for each employee. The rather large JE I had to make was a reminder of why we have to be ever mindful of the nickels and dimes in business so that the dollars can take care of themselves.

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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.

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I agree, one needs to consider the valuable assets of employees. So many forget this fact. I didnt realize Netflix had this policy. I like them more now. My company is very flexible and I would say PTO is an accounting nightmare. We tend to have an off the books compt time scenario.

Ronda
Controller

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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.

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