Build the perfect PTO Policy

Aug 15, 2014 | Management

Offering employees paid time off (PTO) is beneficial in attracting new talent and maintaining your current workforce. While the concept seems basic, much thought must be put into creating a policy that is right for your business. Keeping it simple is key – stay general enough that you won’t have to continually make exceptions, which may open you up for discrimination claims. Make the policy easy to understand so that non-HR managers and employees know what is expected/required.

Below are some questions to get you started on the perfect PTO plan for your business/organization. (Keep in mind that some state laws come into play concerning paid time off. Before you finalize your plan, check the state websites for all states in which you do business.)

  1. What Is Your Definition of PTO?
    All time off? Just certain  types of time off? In most cases, classifying all time off (sick, vacation, personal time, etc.) as PTO (paid time off) will help to streamline your policy. This may also help prevent last minute calls ins from employees trying to use remaining sick time.
  2. What Is Your PTO Accrual Schedule?
    Will PTO build up over the year (e.g., 2 days per month) or will there be  a yearly allowance available on the first day of the year (e.g.,15 days beginning on January 1)? Per payroll accruals may also be used. Your AccuPay processor will help you set up these accruals once your policy is in place.
  3. Will You Impose Use It or Lose It?
    You will need to determine whether accrued time will be lost if not used by a set time. Be aware that some states consider PTO as a part of compensation that must be used or paid for. The State of Indiana views PTO as a fringe benefit and allows a “use it or lose it” provision; however, consistency is key! Keep in mind that a “use it  or lose it” policy may result in an influx of PTO requests at      year end.
  4. Will You Limit Rollover?
    If you allow employees to roll over accrued time year to year, you may want to considering “capping” the amount of time that may be accrued (especially if you choose a “pay out” provision upon  termination.) Even in states where use it or lose it is prohibited, you may be able to limit rollover from one year to the next (again, check state law compliance).
  5. How Will You Deal with Partial Days Off?
    Exempt employees must be paid  for partial days worked, but dipping into PTO time is allowed. Likewise, non-exempt, hourly employees may be required to use PTO time when time away from work is necessary. Take time in half hour to hour increments – unless you really enjoy working with fractions!
  6. Will You Have Special Rules for New Employees?
    For example: Is there a waiting period before any PTO accrues? Is there any proration for new employees who begin in the middle of a period?
  7. Will There Be Restrictions on Taking PTO?
    For example, multiple employees with similar skill sets/jobs may not be out at the same time. You may also restrict time off during certain key periods of the year for your particular business. Make sure your policy states the time must be approved, and refers to any “blackout” periods for the company or individual departments.
  8. How Must Leave Be Requested?
    It is best to require advance notice for vacation/personal leave. The advance timing is dependent upon scheduling and staffing needs for your business. If schedules are put out two weeks ahead of time, require at least that much leeway so managers aren’t scrambling for help. Set up a standard method for requesting time in advance and communicate it to all employees. Again, be sure to indicate that management approval is required.For sick time requests, require a call in by a certain time in the morning and indicate whether the employee must speak to a manager or if  leaving a message is OK. Put procedures in writing and have all employees sign off on them. Discipline those who do not follow the rules. (If you have over 50 employees, be careful not to violate FMLA in handling sick time.)
  9. What Is Your Method for Tracking Time Off?
    If AccuPay processes your payroll, we will assist you in tracking your PTO accruals, time used, and balances. You may select what is included in reports and/or on the employees’ check stubs.
  10. How Will You Pay upon Termination?
    In the state of Indiana, if there is no company policy that states  otherwise, the “default” is that accrued PTO must be cashed out upon termination. If you do not intend to pay out vacation upon termination, be sure to clearly indicate this   in your written policy, and have employees sign that they have read and understand the policy as part of your new hire orientationIf  you do intend to pay out accrued time, determine what, if any, factors will come into play. Will you pay accrued time regardless of how the employee terminates, or only if providing a required notice? (Bemindful of your “rollover” policy to avoid huge payouts!) Check laws in your state to be sure your policy is compliant.

There is much to consider when creating the perfect PTO policy for your business. Need help? AccuPay’s HR Support Center offers sample policies to get you started. In addition, our HR On Demand service gives you unlimited access to a team of HR professionals who will draft your PTO policy for you with your input. Contact AccuPay at 317-885-7600 for more information.

PayDay is an email communication of payroll news, legal updates and tax considerations intended to inform clients and colleagues of AccuPay about current payroll/HR issues and planning techniques.  You should consult with your CPA or tax advisor before implementing any ideas, comments or planning techniques. PayDay emails should not be considered as legal advice.