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Employers Consider Changes to PTO Policies as Unused Vacation Days Accumulate

A woman in a hat is relaxing on the beach.

​Jill Smith has been watching as more and more employees at The Insurance Market cancel their summer vacation plans amid uncertainty over the COVID-19 pandemic. The operations manager at the insurance agency is concerned that many of its 38 employees could forgo paid time off (PTO) due to the company's "use it or lose it" policy. At the same time, the Laurel, Del.-based company doesn't want everyone asking for time off at the end of the year.

Now, the company is grappling with how to proceed. It has ruled out letting employees carry over time or paying them for their unused time. Smith said the latter option would be prohibitively expensive with about one-third of the employees entitled to at least four weeks off. One option under consideration is letting employees donate unused vacation time to a bank that could be tapped by colleagues facing extraordinary circumstances. Another is mandating employees to take some time off by a certain date.

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Smith said the company is waiting to see what happens when the state begins its reopening on June 1 before making any final decision about any changes.  

"We are hoping with the warm weather people will start to take some time," she said.

Helping to Minimize Lost Days

Companies are facing the dilemma about how to address employees' reluctance to take time off during this precarious time. Limited vacation options are keeping some employees at their real or virtual workstations. Others fear they may get laid off and want the payout of unused vacation times that some companies offer.

Employers have their own worries. Many want to conserve cash as the economy continues to sour and don't want to have to compensate employees for unused time or let them carry over days until next year.  

A substantial number of firms—42 percent—have made or are planning changes to PTO, vacation and sick-day programs to address the situation, according to a survey by consulting firm Willis Towers Watson. To minimize employees' lost days, 24 percent of companies are planning to increase carryover limits. Meanwhile, a smaller share—16 percent—are requiring employees to take vacation time to reduce the build-up, and another 22 percent are planning or considering the same policy.

Experts caution that employers should tread carefully when changing PTO policies. Many individuals are already stressed by the tumult triggered by the virus and don't want to grapple with any more twists and turns. "It (time off) is the most emotional benefit we have. It is the most valued," said Jackie Reinberg, North America consulting leader, absence, disability management and life at Willis Towers Watson. "People don't have a lot of control right now, and they are trying to control what they can."

Managers Can Lead by Example

Reinberg said employers should remind workers of the vacation policy so they can plan accordingly. If they suspect employees are nervous about taking time off, managers should lead by example and announce their plans to unplug, she added. Reinberg also noted that companies that are able can also opt to close operations for a week, forcing people to take vacation time. They can also require employees to take their time within certain parameters. For example, everyone must take a week in July or August.

"It is hard to mandate an emotional entitlement," Reinberg said.

Smith said she is starting a dialogue with employees reminding them of the company's policy, telling them "we don't want you to lose your time." The donation option has more complicated tax implications than the company originally realized, she added. And she is worried about what would happen if the bank was empty when some employees wanted to withdraw but was full for others. But it is still under consideration.

Time to Update the Handbook

Consistency is key when changing a PTO policy, says Kelly D. Williams, managing partner of The Slate Law Group in San Diego. Williams said companies can change their policies at any time, and she recommends updating the employee handbook to include any alterations. That handbook could be used in any litigation, she said.

Williams cautioned that employers must follow the policies laid out in the Families First Coronavirus Response Act if an employee's request for time off results from COVID-19. It provides paid sick leave for those with the illness or caring for someone who is sick.  

Otherwise, employers must follow state laws governing time off. For example, California does not permit companies to impose "use it or lose it" policies, Williams said. 

American Extrusion International, a South Beloit, Ill.-based maker of snack manufacturing equipment, has a "use it or lose it" vacation policy for its 51 employees. However, Peter Smith, the company's human resources manager, said that sometimes employees are permitted to carry over a couple of days. He asked the management of the family-owned company if all employees could be allowed some carryover due to the circumstances and hasn't heard back. "We may not have an issue (with unused vacation)," he said. "It would be good to know (the answer) as people plan their vacations."


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