Labor Demand Boosts Paid Time Off Benefits

PTO banks are on the rise, along with paid parental leave

By Stephen Miller, CEBS Jun 28, 2016
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Employers are increasing the amount of paid time off (PTO) given employees—especially for parental leave—and changing how paid leave is structured.

These changes were reflected in a June 2016 survey report, Paid Time Off Programs and Practices, by WorldatWork, an association of total rewards professionals mostly at midsize and large North American companies. The findings are based on a January 2016 survey that was sent to 5,005 WorldatWork members, with a 13 percent response rate.

“Organizations understand they can no longer be competitive if they don’t get creative with their own paid time off benefits,” said Lenny Sanicola, WorldatWork senior practice leader. “For many employees, paid time off is more important than other traditional pay and benefits.”

PTO Program Structure

The survey showed that:

  • The use of PTO banks that combine vacation, sick and personal days into one allotment have continued to increase steadily since 2002 (when this method was used by 28 percent of respondents, per an earlier WorldatWork survey) to 2015 (43 percent).
  • Traditional PTO systems, with separate vacation, sick and personal days, remain the most prevalent approach, although their use has declined from 2002 (71 percent) to 2015 (52 percent).

Top reasons for transitioning to a PTO bank include the simplicity of plan administration and cost savings.

More than 40 percent of organizations said that PTO banks improved absenteeism when they were first implemented, and 69 percent featured their PTO bank as a key employee benefit when attempting to attract new employees, the survey found.

But PTO banks also have drawbacks, and “one is costs,” said Sanicola. “Since all the days become earned time, even if you are cutting the number of days thrown into the bucket, all the time now becomes a financial liability on the books.” That’s one reason why “Companies that know their average sick time use will make a decision based on that and the total amount of time available, to determine how many days to place in the PTO bank.”

Average Paid Days Off: Traditional Plans vs. PTO Banks

For traditional plans, the total is equal to the combined averages of vacation, sick and personal leave days.

 

Traditional

PTO Bank

Less than one year of service

20

16

1-2 years

23

17

3-4 years

24

18

5-6 years

28

22

7-8 years

28

22

9-10 years

29

23

11-15

32

25

16-19

34

26

20+ years

37

27

Source: WorldatWork.


“Usually, the number of days increases at the 5-year milestone, so I am not surprised that the 7- to 8-year interval remains the same” as the 5- to 6-year interval,” Sanicola said, explaining what might seem an anomaly with the data.

PTO banks “work best in flexible work cultures where employees feel a sense of ownership over benefits as opposed to one of entitlement,” he added. “If an organization desires more control and knowledge about why people are out, a PTO-bank approach may not help.”

Paid Parental Leave

While 82 percent of respondents offer new parents only the unpaid job-protection leave mandated by the Family and Medical Leave Act (FMLA) and any state or local laws, 18 percent exceeded FMLA requirements and offered more family-friendly time off or paid parental leave.

Among organizations that offer separate paid parental leave:

  • 54 percent offer fewer than six weeks.
  • 16 percent offer six weeks.
  • Another 16 percent offer 12 weeks.

“Your company, and each department, will have unique needs. An employer will want to settle on a timeframe that is acceptable across all departments,” advised  Amy Esry, SHRM-CP, an HR consultant with Hausmann-Johnson Insurance in Madison, Wis. “Trying to offer different policies for different departments or classes of employees may cause morale issues at the least, and discrimination accusations at worst.”

Forty-four percent of organizations that provide paid parental leave require a tenure of 12 months or more before an employee can use this benefit, WorldatWork found.

Most paid parental leave programs do not require employees to exhaust PTO, vacation, sick or other accruals or access other income-replacement options such as short-term disability, the survey showed.

A Case in Point:
Paid Parental Leave at CSG International

Cutting-edge companies are introducing progressive family leave benefits in an effort to better attract and retain top industry talent. An example is Englewood, Colo.-based CSG International, a midsize managed-service provider in the telecom space.

Bruce O’Neel, vice president of HR, provided answers about the firm’s recently adopted paid leave policy.

How much paid parental leave is offered, what are the tenure requirements, and are there any differences for mothers and fathers?

O’Neel: The policy includes up to 16 weeks of paid time off for birthing mothers that can be taken over a six-month period after the birth of the child—this is inclusive of up to 10 weeks of maternity leave and six weeks of bonding time. The addition of paid bonding leave time for the spouse or partner enables parents to play an equal role in spending quality time with their child.

Additionally, the policy gives partners or spouses up to six weeks of paid time off for bonding time following the birth or adoption of a child. This bonding leave can be taken full-time, part-time or intermittently at any point in the six months following the child’s birth or adoption.

Employees receive 100 percent paid time based on their normal rate of pay, and all domestic employees are eligible for maternity and bonding leave benefits after one year of service with the company.

How is paid parental leave tied into improving recruitment and retention?

O’Neel: By modernizing the policy, CSG can differentiate itself in the marketplace to better attract and retain key talent. In today’s evolving career landscape, finding top talent can be a challenge for many companies—we see this new policy as a way to support and invest in our current employees, while also looking to attract new Millennial talent with progressive benefit offerings.

Must other paid time off be used before parental leave?

O’Neel: CSG uses a vacation, sick, personal day structure for our paid time off practice. Employees are not required to use their sick time, vacation time or floating holiday/personal time during a maternity or bonding leave. We believe that employees should be able to use their other paid time off benefits for vacations, recovering from illness, celebrating holidays or other milestone events that are important to them.


Parental Leave Factors

Esry recommends that organizations consider the following factors when deciding whether to adopt a paid parental leave program.

  • Can your culture support it? Will employees without children resent new parents taking time off? How will workload be redistributed when an employee is out an extended time? For paternity leave, is the organization truly ready to support men taking leave or will there be a stigma preventing them from actually doing so? At Facebook, parental leave for new mothers and fathers “is just called the ‘four month leave’ and taking the full time off is supported from the top down,” Esry noted.
  • The makeup of your workforce. What percent of your workforce is of child bearing age? If it is significant, will paid parental leave be too expensive? Then again, if you hire and hope to retain younger workers, should paid parental leave be a significant part of your recruiting/retention strategy?
  • Cost. Consider lost productivity and wages paid to the employee on leave while the work is being done by someone else. Smaller companies face a heavier burden when an employee is out an extended period, with fewer people to take up the missing employee’s workload.
  • Competition for talent. Will offering parental leave give you the edge in recruiting/retention? Consider other firms in your industry or geographic region and the competition you face in hiring. In a tough labor market, a program like this could impact where top applicants choose to go, or stay.
  • Coordination with disability benefits. How will paid parental leave work with your current disability plan? If your disability plan pays less than 100 percent of salary, will your new parental plan top off that benefit to 100 percent?
  • Alternatives. If you decide to not implement a paid parental leave plan, there are other options you can consider to help new moms and dads with work/life balance. Consider alternatives such as allowing new parents more flexible scheduling, reduced work hours and telecommuting opportunities.

PTO and Parental Leave: SHRM’s Findings

Society for Human Resource Management (SHRM) members report that about one-half of their organizations (51 percent) administered paid leave through a PTO plan that combines vacation, sick and personal leave.

SHRM members also said that slightly more than one-quarter of their organizations (26 percent) offer paid maternity leave other than what was covered by short-term disability or state law, and 21 percent offer paid paternity leave.

The findings are from SHRM’s 2016 Employee Benefits survey report, released in June.

Whereas the number of organizations with a PTO or vacation plan was unchanged over the past five years, there has been an increase in those offering paid sick leave compared with 2012, from 33 percent to to 41 percent, the survey showed.

Among the 51 percent of organizations offered a combined PTO plan, 17 percent offered a cash-out option for unused days and 12 percent offered a donation program wherein employees donate PTO to a general pool that can then be used by other workers.

In addition, 4 percent provided their employees with unlimited PTO.


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