Should your business offer a paid time off policy?

Summary

• There is no federal law mandating PTO in the US

• Utilizing a PTO bank reduces deception, builds trust, and lowers absenteeism. – More 

• PTO comes with some difficulties, such as determining accrual rates and navigating conflicts around the holidays. – More

With the lowest number of mandated paid leave days, the United States is often referred to as the “no vacation nation.” 

However, for American workers, paid time off, including personal time and vacation days, is crucial for maintaining a healthy work-life balance and job satisfaction. In fact, a recent survey found that 62% of workers consider paid time off (PTO) to be “extremely important.”  

This raises an important question for businesses – should you offer a paid time off policy even though it’s not required by federal law? 

As labor market expectations are shifting when it comes to paid time off, this might be a great time to consider revisiting your company policy to include offering your employees a number of days of PTO. There are currently nearly double the amount of job openings than there are job seekers, making it a job seekers market. People are looking for more out of their jobs, particularly younger job seekers like Gen Z, who prioritize things like flexibility and work-life balance. Offering a competitive paid time off package is a great way to do this and, as a result, attract top talent.

Here are a few things for company owners and human resources professionals to consider before making the decision. 

The basics of paid time off 

Paid time off covers a number of situations, such as:

• Vacation leave 
• Personal days
• Sick leave  or medical leave (for physical and mental health)
• Public holidays
• Bereavement leave
• Parental leave
• Maternity leave
• Jury duty

There is no federal law saying employees can have paid time off from work. In the words of the Department of Labor, “These benefits are matters of agreement between an employer and an employee (or the employee’s representative).” 

However, the United States is now the only advanced economy not to mandate paid leave. And as workers return to a labor market shaken up by the pandemic, this discrepancy is becoming more of an issue. As pro-PTO advocates are fond of pointing out, “even the ancient Egyptians had paid sick days.”

PTO and the law

Despite the United States lagging behind compared to other countries when it comes to nationally mandated PTO, 14 states, plus Washington, D.C., have passed their own laws related to paid time off for illness. State laws can also dictate how PTO is accrued. For example, in Connecticut, the first state to impose PTO laws in 2011, companies with more than 50 employees must offer one hour of sick leave for every 40 hours worked, up to a maximum of 40 hours per year. This, however, is only applicable to employees in 69 job classifications. You can see an up-to-date overview of which laws apply in which states here.

Federal law does allow employees to take up to 12 weeks of unpaid and job-protected leave every year under the Family and Medical Leave Act (FMLA). This time off can be taken for “certain family and medical reasons,” such as caring for a family member or a loved one or for medical leave. 

PTO banks 

An increasingly popular way of implementing paid time off is via a PTO bank. With a PTO bank, employees have a number of hours or days that they can use whenever they need to for any purpose. As the number of years of service an employee has given to a company increases, so will the time off in the bank – in 2021, that was 10 to 14 PTO days after one year.

The benefits of implementing a paid time off policy

Setting up a PTO bank has obvious appeal to employees, but it can benefit employers, too.

Saves managers’ time: As long as time is booked in advance (with the exception of sick days, where advance notice may not be possible), there is no need for the employee to explain why they are taking time off and, therefore, no need for managers to spend time deciding if requests are justified. This becomes even easier when PTO-tracking software is used. 

Builds trust: Managers don’t need to know if someone is taking a day off for a hospital appointment or just to catch a new movie on opening day. You’re treating employees like responsible adults, not schoolchildren who need to justify themselves.

Reduces unauthorized absences and lateness: Having a PTO plan means employees can plan ahead for everything from vacations to appointments without losing out, so work and life aren’t in conflict with one another.

Reduces deception: Ninety-six percent of U.S. workers have lied to get out of work. While it’s impossible to completely eliminate this kind of time theft, with PTO, employees don’t need to spin a story to take time off. They just use their time.

The difficulties of paid time off

As with any change to workplace culture, implementing PTO is not without its difficulties.

Earning more PTO is hard: There is a generational gap regarding employment tenure that can impact a worker’s ability to expand their PTO allowance. For people over 55, the average time spent at a job is almost 10 years, while for 25- to 34-year-olds, it is now just 2.8 years. This places a soft ceiling on how much PTO new employees can enjoy, which can lead to difficulties in recruiting staff and resentment, and decreased motivation for newer employees. Some companies now offer 15 days of PTO as a lump sum as soon as employees start to level this playing field.

Unused vacation and time off: In the U.S., employees are bad at using their allotted benefits – they often don’t use their time off and then experience burnout and are aggrieved if they can’t roll over those days and hours to the next year. Sixty-two percent of U.S. workers admitted to working while sick, and 92% said that they do so “because they can’t afford to take a sick day.” To combat this, educate staff that PTO policies are there to be used, and encourage your employees to use their sick days, vacation time, and other days off as needed.

Time off requests need fair treatment: Not everyone will be able to take their desired days off – there’s often a rush to take time off at the end of the year, for example, and some people will have to miss out to keep the company running. To prevent this, set up your company calendar so that PTO accrual expires in the spring rather than on New Year’s Eve.

Unlimited PTO isn’t a magic bullet: The idea of unlimited PTO is becoming increasingly popular among job seekers. The concept may seem appealing to employees, but it has its drawbacks. Most workers with unlimited PTO policies don’t take advantage of their unlimited time off and take fewer days than they would have with a set number of vacation days, and miss out on payments they would have received for unused PTO at year-end as a result.

A paid time off policy isn’t essential for your business – but it could be soon

The idea of a traditional eight-hour workday at a job you work for decades, with two weeks of vacation and national holidays every year, lingers in the popular imagination but doesn’t reflect the reality for millions of U.S. workers in 2023. Employees are more alert than ever to the benefits they want, and, for many, that is paid time off in their benefits package. 

With no legal requirement to do so, it’s understandable that not every business will want – or be able – to implement a paid time off policy right now. But between legislation and staff expectations, it may not be optional for much longer. 

Whether you think the time is right to introduce PTO to your company or prefer to adopt a wait-and-see approach, Workforce.com’s time and attendance software is already set up to help you manage time off requests effortlessly.