Top 5 Questions About Paid Time Off (PTO) and Vacation

by | Jul 27, 2021 | Employees

Aside from competitive salaries, paid vacation is one of the top benefits desired by employees. With a tight employment market, about 2/3 of employers market their vacation/paid time off benefits to attract top candidates to their organization (according to a recent World at Work survey). When designing and reviewing their time off policies, employers should consider the questions below. It is important to check state laws regarding vacation as these can vary from state to state.

Which is better – Vacation or Paid Time Off (PTO)?

PTO combines vacation and sick leave into one plan and can be taken for any reason. Traditional vacation and sick leave are two separate programs and can be taken only for the intended purpose. According to the World at Work survey, 52% of employers offer traditional vacation and sick leaves plans while 41% of employers provide a PTO plan. The other 7% offer a different kind of vacation plan or no plan.

Employees like PTO because it gives them more flexibility and provides more vacation time to those who do not typically take many sick days. Employers find it easier to administer because everything is in one pot. On the downside, employees who use most or all of their PTO may not have a sufficient amount left if they are unexpectedly out sick or have other unforeseen needs for time off. Employers may find employees are taking more unscheduled days off than with traditional vacation and sick leave plans. Because employees are offered more days of leave in a PTO plan, employers may need to pay out a larger balance of PTO when an employee leave the company. Refer to the next paragraph for information on how PTO interacts with state sick leave laws.

If my state has a sick leave law, can I offer PTO instead of sick leave?

Yes. Employers that offer PTO instead of traditional vacation and sick leave plans must include all provisions of state sick leave laws in their PTO policy. This including complying with accrual amounts, year-end carry over, accrual cap, reasons for taking leave, non-retaliation, etc.

How long should new employees wait before using vacation and PTO?

According to the World at Work survey, allowing new hires to use vacation immediately is the norm (63% of employers provide immediate use), but 90-day waiting periods are also common.

Are we required to allow employees to carry over vacation or PTO at year-end?

No, unless you are in one of the few states where “use it or lose it” vacation policies are not permitted. As noted above, if you offer PTO instead of sick leave, you will need to comply with sick leave laws which include provisions related to carry-over and accrual caps. Your employee handbook should clearly state how vacation carry-over and vacation accrual caps, if any, are handled.

Do we have to pay off accrued but unused vacation or PTO when employees leave the company?

No, unless you are in state where vacation/PTO must be paid out upon separation. According to the World at Work survey, almost 50% of employers pay out vacation/PTO when employees leave the organization Whether you pay it out or not, it is important to state in your employee handbook how vacation/PTO will be handled when employees separate. If your policy is silent on this issue, some states may interpret the employer’s policy as requiring a pay-out.

For expert guidance on vacation, sick leave, PTO policies and employee handbooks, contact us at LJ Consulting. We specialize in custom creation and updating of employee handbook for small businesses.