Alternative Approaches To Paid Time Off Policy for Businesses

October is right around the corner. So is the October 15th extension deadline. And so is the fourth quarter for your business.

As we approach Q4, be mindful of the usual year-end accounting needs and reporting requirements that will be popping up. We’ll keep you informed of changes coming, but please do reach out proactively to begin preparing if you haven’t already:

And with the start of a new year coming in just a few months, it can also be a great time to reevaluate some of your company benefit packages that will be rolling over on January 1. Specifically, your “use it or lose it” paid time off (PTO) policy.

Not all companies take this approach, so let’s discuss some alternatives that are out there.

Alternative Approaches To Paid Time Off Policy for Businesses
“A vacation is what you take when you can no longer take what you’ve been taking.” ― Earl Wilson

If your paid time off policy hasn’t changed in decades, it may be time to take note of the latest statistics regarding PTO and the challenges that both employees and employers are navigating.

The Current PTO Landscape

Utilization gap: Only four out of ten workers use all their allotted days of leave each year, leaving 60% struggling to use it all effectively. (Source: Human Resource Management)

Job demands: One in three workers find it hard to take their vacation time due to demanding job responsibilities. (Source: Indeed)

Special situations: Some employees save their PTO for special occasions, lack the funds for a vacation, or simply feel guilty about taking time off.

Interest in other options: Surprisingly, 83% of workers express interest in converting PTO into other financial resources. (Source: MetLife)

These are situations when PTO can become more of a burden than a benefit. So let’s talk about other options you have as an employer.

Offering Unlimited PTO

The concept of unlimited PTO gained popularity around a decade ago, with companies like Netflix offering this perk to their staff. This kind of arrangement can boost productivity and morale, remove the pressure of having to work while sick, and can be used as a great recruiting tool for a population looking for more flexibility and freedom in their work.

But time has shown that it might not be the ideal paid time off policy for everyone. Nearly 30% of Americans with unlimited PTO policies end up working during their vacations. Others avoid taking vacations to meet unspoken work expectations, leading to burnout.

Note: If you decide to adopt an unlimited paid time off policy, consider setting a minimum annual vacation requirement to encourage employees to take time off for genuine relaxation.

Combining Vacation and Sick Time

Many employers are moving towards PTO banks that don’t distinguish between sick leave and vacation time. This approach has seen positive results, including a decrease in unscheduled employee absences and reduced HR tracking efforts.

But it’s not universally popular among employees, especially those with high healthcare needs, who report finding themselves using a significant portion of their time off for medical reasons. And some say it could backfire and incentivize sick employees to come to work so they can save PTO for vacation.

Note: Before implementing a combined PTO policy, be aware of state and local laws that may restrict or regulate its usage, which can vary from state to state.

Converting PTO Into Actual Money

This paid time off policy allows employees to cash out their unused PTO for other benefits. Instead of losing unused PTO or being constrained by calendar timeframes, employees can choose how they want to use their earned time off.

Employees can convert PTO into cash for various financial purposes, such as building an emergency fund, contributing to a Health Savings Account (HSA), or adding to their retirement accounts.

For you as an employer, it could potentially reduce the liability and administrative burden associated with PTO management.

Note: Don’t forget to consider the tax implications and reporting requirements when implementing PTO conversion policies. This includes adjusting payroll taxes and complying with IRS regulations for contributions to HSAs and retirement accounts.

Ultimately, the best PTO policy for your Coastal Southeastern NC organization will depend on your specific needs and goals. But this is one of those small changes that could make a big impact for your organization, both in hiring and employee management. I can help you assess the impact on your bottom line.

Helping you think outside the box,

Karen S. Durda, EA