What is Paid Time Off

What is PTO? Paid Time Off is the most common Employee Benefit offered and almost every Employer that we help has a Paid Time Off policy. Choosing how to structure your Paid Time Off policy will be key in keeping the administration easy as well as your employees viewing it as a good policy.

What is PTO: What Kinds Are There?What is PTO: What Kinds Are There?

The three most common types of paid time off are: Vacation, Sick and PTO.  Vacation and Sick are self explanatory.  These two types of paid time off are designed by separating time off into the two categories with the expectation that each category is kept independent from each other.  Some Employers may require a doctor’s note for sick days used in excess of three or more days.  Additionally, sick time normally resets each year or has a cap.  PTO is a combination of both vacation and sick time.  Employers choose PTO instead of having separate Vacation and Sick to ease administration as well as eliminating Employees “calling in sick” to go fishing instead.

“Vacation, Sick and PTO are the most common Paid Time Off Types.”

What is PTO: When Should I Use PTO or Vacation / Sick

PTO is commonly used by smaller Employers that do not want to deal with the hassle of tracking multiple accruals.  By using PTO the Employer allows PTO to be used for anything.  Vacation and Sick should be used by Employers who work in areas where mandatory paid sick leave is required.  This allows the Employer to separate Sick Leave from Vacation without increasing the total number of days off given.  Vacation and Sick should also be used if an Employer wants to reduce paid time off cost.  By separating vacation and sick leave, Employers can create policies which help enforce only taking Sick Leave when actually sick which reduces the cost of Sick Leave. Click here to contact a Payroll Services representative for more information.

“Deciding which Paid Time Off type to use will be based on your Company’s intentions and local wage laws.”

What is PTO: How Much Time Is Standard To Give?

According to SHRM’s 2004 Benefit Survey the average number of total paid days off in the United States are:

Years of service Average days per year
Less than 1 year 14
2 year of service 17
3 years of service 18
4 years of service 18
5 years of service 21
6 years of service 23
7 years of service 23
8 years of service 23
9 years of service 23
10 years of service 25
11 years of service 26
12 years of service 26
13 years of service 26
14 years of service 26
15 years of service 27
More than 15 years of service 27

“How much time employees earn is a big part in designing a strong Paid Time Off strategy.”

“How your Employees earn time is just as important as how much paid time off they earn.”

What is PTO: How Should My Staff Earn Paid Time Off?What is PTO: How Should My Staff Earn Paid Time Off?

Earning paid time off or known as accruing, differs from Employer to Employer.  The most common accrual method is to accrue by pay period for salaried workers and to accrue by hour worked for hourly staff.  The rate in which Employees accrue is normally tied to their tenure.  Each year an Employee is with the Company, the employee accrues at a higher rate.  Most Employers utilize a probation period of 90 days, where the employee does not accrue until then.  Once the employee meets the probationary period, the Company allows him to begin accruing and potentially retroactively accrues for the first 90 days of service.

Earn On First of the Year

Some Employers allow their employees to earn the full amount at the start of the year or at the start of the employee’s anniversary.  In this case the employee has the total amount to use immediately.  Payroll Services does not recommend using this method as the Employer runs the risk of paying out the entire amount of time off unintentionally.  For example, if an Employee wants to leave the Company for a new job, the Employee is incentivized to wait till the first of the year to gain the full amount.  Once they earn the amount, they take a vacation and put in their two weeks notice.  The goal of a well thought out Paid Time Off Policy is to provide Employees with the needed time off and protecting the Company funds at the same time. Click here to recieve a free PTO review.

“Having a Negative Paid Time Off policy is important in order to control cost and flexibility for staff.”

What is PTO: Negative Balances

A common question or situation that Employers are faced with is “do I allow negative time”.  There is not right or wrong answer.  If an Employer wants to allow negative time, they should pick an amount that can be easily deducted from an Employee’s compensation in the event the employee does not return to work.  We recommend no more than 20-40 hours of negative time.

There should also be a policy put in place where management can review the negative time request and choose to approve or deny it based on the situation.  All negative time off policies should be outlined in your employee handbook and checked with State law to make sure your State allows payroll deductions in these cases.

“Capping the amount of Paid Time Off is an important cost control strategy.”

What is PTO: Use it or Lose It , Carry Over or Pay Out?What is PTO: Use it or Lose It , Carry Over or Pay Out?

Typically Paid Time Off policies will consist of a Use it or Lose it, Carry Over or Pay Out clause.  These policies are designed to limit how much an Employee can carry from one year to the next and to help control cost.

Use it or Lose it will require the Employee to use all or part of their accrued amount by a certain date.  This date could coincide with the end of the year or the Employee’s anniversary date.  Some Companies will force mandatory time off in order to reduce the Employee’s balance.

Carry Over limits will reduce the amount of an Employee’s balance to a max level and carry that over into the next period.  Carry Over policies often have a maximum amount allowed during the year and the Employee must be below that amount before they start to accrue again.

Pay Out policies pay out a portion of the Employee balance via payroll. This occurs at a set time of the year which normally correlates with the Employer’s Year End.

“Deciding on Company Holidays is the first step in building a Paid Time Off policy. “

What is PTO: Holidays

Most Companies pay their Full Time Employees for certain holidays.  The most commonly recognized holidays are

  • New Year’s Day, January 1
  • Martin Luther King, Jr. Day, the third Monday in January
  • Washington’s Birthday, the third Monday in February
  • Memorial Day, the last Monday in May
  • Independence Day, July 4
  • Labor Day, the first Monday in September
  • Columbus Day, the second Monday in October
  • Veterans Day, November 11
  • Thanksgiving Day, the fourth Thursday in November
  • Christmas Day, December 25

The most important item to think about when creating Company holidays, is to factor in your Company’s customers and normal operating schedule.  If you are a retailer, closing for Black Friday is not wise, however if you are a medical office there may be no adverse affects.

“Offering part time employees Paid Time Off can be an important strategy in attracting employees for certain business models.”

What is PTO: Part Time EmployeesWhat is PTO: Part Time Employees

Paid Time Off for part time employees varies between Employers and is designed to attract staff dependent on your industry.  For example if you are a service center that has more part time staff than full time, offering Paid Time Off is a great benefit.  The amount of Paid Time Off is normally tied to tenure and starts 12 months from the date of hire.  Paid holidays is also something that should be considered when crafting a Part Time Paid Time Off Policy.

“A Paid Time Off Request system will help automate and streamline Employees’ leave request.”

What is PTO: Paid Time Off Request

Implementing a paid time off request system is crucial in automating and keeping track of time off.  With Payroll Services’ Paid Time Off Request system, Employees can request Paid Time Off with a click of a button.  The system will then send the Manager a notification of pending time off request.  Once the request is approved or denied, the system will send a notification back to the employee.  Payroll Services’ system keeps track of who requested off and when they requested off for you.  Automate the paid time off today and click here to see a demo.