One far-reaching trend in human resource management is to adopt a policy allowing paid time off accrual, in which employees earn a single pool of sick, vacation and personal leave days (rather than having separate policies and days for each).
By having one paid time off accrual policy, companies can realize a number of benefits:
- Fewer headaches. Now the company doesn’t have to discover if an employee asking for time off needs the leave for illness or to go to Miami for vacation. Since one policy covers both instances, a person only needs to ask for the time off, if they have the hours accrued.
- Reducing the number of times people call in for sick days. If a company has a separate sick leave policy, workers sometimes view unused sick days as vacation time owed them. Overall, a company will have employees taking fewer PTO days than with separate policies.
- Happier employees. If everyone has the same bank of days to use, then there is a feeling of fairness.
Sometimes Separate is Necessary
For some companies, having separate policies for days off may be a good thing. For example, in some states, accrued paid leave may be classified as wages that need to be paid out to departing employees. But some leave types might be exempted from this. So, it might be permissible to say that sick days won’t be carried over and paid (because they are exempt) while state law insists that the same treatment of vacation time would be illegal.
It also might make sense, for compliance purposes, to have a separate policy if a municipality, for example, requires employers to have a paid sick policy. By keeping your sick leave and vacation policies separate, you demonstrate good compliance.
Granted vs. Accrued
Companies also have the choice to structure their time-off policy, so that the whole bank of days off is granted on the first day of the year, or to create a system of paid time off accrual (either by pay-cycle or monthly throughout the year).
While the granted approach may be simpler to manage, some states demand that companies pay out earned days upon termination. This means you would have to pay the value of the entire year, even if the worker left early in the year.
With paid time off accrual, you sometimes run the risk of employees borrowing as-yet-unearned days to take an early vacation. Sometimes companies will have signed policies that departing employees must pay for these borrowed days. However, some states won’t allow companies to make deductions from final paychecks for this purpose.
Banking of Days
Different companies have different policies for employees who hold on to their days off. In some cases, the unused PTO rolls over to the next year; in others, only a partial allotment does. And in other instances, the unused time is erased at the end of the year and the employee must start afresh.
To learn more about paid time off accrual and other related issues, download our free Time and Attendance Reporting eBook.