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Paid Time Off Program Pluses And Minuses

by on
in Human Resources

Some employers have retooled the traditional method of setting paid time off in separate categories by folding vacation, personal, or sick leave entitlements into one "bank." These so-called paid time off (PTO) programs allow workers to use banked time without designating the reason for taking a day or multiple days off from work. PTO offers benefits for employers and employees alike, but there are some potential pitfalls if you are not careful.


PTO Pluses

Employers that have switched to PTO programs report administration is easier. Regardless of the reason for leave, absences fall under the same code. The headaches of deciding whether or not a worker is entitled to leave are eliminated. Also, the policy associated with a PTO program may be simpler to write and explain since it need only differentiate between scheduled and unscheduled absences.


Many companies that have converted to PTO programs report cost savings in terms of less time off typically available compared to the old system that segregated sick/personal/vacation leave. Example: An employer's old system offered workers five paid personal days, 10 paid sick days, and 15 paid vacation days. After switching to PTO, employees received 25 days of compensated time off.


Employers also report that unscheduled absences decline after switching over. Employees are less inclined to take days off just to burn their sick time, for example. Also, workers don't have to resort to excuses about an unscheduled absence, and say they are sick, when in fact they have to stay home to take care of a sick child.


Instituting a PTO program can be a morale booster. Employees seem to appreciate the greater flexibility. Under the traditional system, a worker who got the flu in January and wiped out his/her sick leave allotment risked the chance that further absences due to illness were unpaid even if he/she had vacation time. PTO programs are fairer, since workers who rarely call in sick get just as much time off as those who take the full sick-leave allotment every year. Some employers allow workers to cash out unused time or roll over a percentage of hours to the next calendar year.


Potential Pitfalls

When making the transition, it can be difficult converting employees' accrued time under the old system into the new bank. To get around this, some employers pay employees outright for time owed to them under the old system, thus giving them a clean slate under the new one.


Another drawback: There may be a higher payout after an employee leaves a company. Some states require the payment of unused vacation and personal time as final wages due at termination. In those states, there is the potential that the entire PTO bank may have to be paid after an employee leaves. Investigate your state's law on compensation after separation.


It may also be hard to tell when an absence is legally protected under the Family and Medical Leave Act (FMLA). To avoid this, some employers ask for medical certification for unscheduled absences that last for more than three days to determine whether they should be counted as FMLA leave. This ensures that employees aren't improperly penalized for excessive absenteeism.


Overtime due under the Fair Labor Standards Act can get tricky for non-exempt employees who must be paid time-and-a-half for any hours worked over 40. Example: If a worker has used two days of PTO during the week in addition to working 36 hours - for a total of 48 hours - the employee is not entitled to time-and-half for the last eight hours. You do not have to count the two days of leave toward the 40-hour limit.


Bottom line: PTO banks are a great way to solve problems as long as you are prepared to deal with potential drawbacks ahead of time.

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