On the surface, a paid-time-off arrangement for granting leave may seem like a windfall just for employees: If they’ve accrued the time, they can take it without having to explain whether it’s a sick day or a vacation day. It’s the employee’s time to take for whatever purpose.
But dig deeper, and it’s apparent that a paid-time-off (PTO) system, often called a PTO bank, can also provide a substantial payoff for employers. Cecelia Muir, SPHR, human resource director at Pinnacol Assurance, a Denver-based workers’ compensation insurance company, says, "In our annual employee satisfaction survey, the PTO bank is one of the top reasons they like working here. We have a high level of employee satisfaction and engagement, and good retention—usually about 6 percent to 7 percent annual turnover."
At Chicago-based Administaff, an HR outsourcing firm, senior HR specialist Karen Codere, SPHR, says the company has used a PTO bank for the past 20 years. "Our employees just love it. It would be hard to give it up now."
Besides influencing employee relations, a PTO bank can provide other benefits, mainly financial, for employers that switch from the traditional system of having distinct categories of time off—such as vacation, personal and sick leave. With a PTO bank, employers spend less time determining whether an employee is eligible for a particular type of requested time off.
In addition, HR staff members can find it easier to stay abreast of employees’ time off taken and time off remaining. That information is tracked through the payroll system in a way that is transparent to employees and supervisors. "And no one gets into tiffs about whether a day off counts as sick, personal or vacation time," Codere says.
In the Society for Human Resource Management’s 2009 Employee Benefits survey report, 42 percent of respondents said their employers had a PTO plan with "sick, vacation and personal days all in one plan."According to 2009 data from Culpepper Compensation & Benefits Surveys, nearly one-third of U.S. companies now use a PTO bank for annual leave.
Besides possible financial and administrative advantages, a PTO bank can serve purposes such as those that Muir cites for starting her company’s PTO program in 1997. "Our motivation was to give employees more work/life balance," she says. "Employee satisfaction drives customer satisfaction, and we felt that this increased flexibility would appeal to our people."
That’s a change from the office culture of the 1990s, Muir continues, when calling in sick was somewhat taboo and no employee wanted to appear to be a weak member of the team. "Today, out-of-work time demands are increasing," she says. "Seventy percent of our employees are women, who tend to need lots of flexibility to meet demands outside of work." The PTO bank, she explains, enables them to take the time off they need without having to state why.
Just as important: All employees, regardless of marital or family situation, can enjoy the benefit equally, Muir says. "A single employee may unexpectedly need a half-day off to take his or her dog to the vet," she says. Under the old system, the employee may have felt awkward in asking for that half-day, but a PTO bank levels the playing field. "Everyone has a unique set of needs that really don’t need to be scrutinized by an employer," she says.
What’s more, says HR consultant Susan Heathfield, a PTO bank allows employers to stop patroling employees’ time. Heathfield, co-owner of TechSmith Corp., a software development firm in Okemos, Mich., says, "Employers should not have to police the time of adult employees. … Lumping all paid time off together relieves supervisors of such monitoring." It also fosters a culture of integrity and trust between employee and supervisor when workers feel they can be open about their work/life needs without professional consequences.
Calculating Bank Deposits
The types of time off that employers put into PTO banks vary among organizations. Heathfield’s firm put in the customary three—sick days, vacation days and personal days—but did not include what she considers "unpredictable" obligations such as jury duty or bereavement time. "As an employer, I would cover this time," she says.
Codere of Administaff says, "Some companies roll in floating holidays and even federal holidays, but I would not encourage putting federal holidays in the bank." Both Administaff and Pinnacol use a PTO bank that blends sick and personal leave but does not include the standard federal holidays.
The number of PTO days that employees receive each year varies among PTO arrangements. For example, the maximum at Pinnacol, after nine years, is 30 days. It’s 20 days of PTO at the start of employment, then 25 days after five years. Administaff offers 24 days of PTO per year.
For companies transitioning into a combined-leave bank, however, there is no hard and fast formula. Codere suggests employers start by totaling all the personal time off offered each year—sick days, vacation days, personal days and perhaps even the employee’s birthday. "Then, look around you at local employers of choice that use PTO banks and see how you measure up. What you end up with may be shaped by your company culture and where you want to go as an organization."
Making the Switch
Jack McCullough, an attorney at a nonprofit law firm in New England, works under a traditional leave system that separates vacation and sick time. He says he sees some problems for some of his co-workers if his company were to move to a combined system. "People who are responsible and use sick time sparingly will most likely continue to do so, whereas people who abuse their sick time are likely to use up all of their PTO. At my workplace, whenever it’s been discussed, people have assumed that they would get the same number of days as they now get for sick and vacation time, which is not the case. In general, it would be fewer than the total of sick plus vacation."
McCullough is right. Commonly, a new PTO program will offer fewer total days than employees had access to under a plan where leave is separate. The reason for this, according to Codere, is that the majority of employees typically do not use all of their sick days, but with PTO banks it is more likely they will use all the leave granted, so it averages out.
"Employers moving to the new system tend to short the employees a day or two, but not enough to cause a revolution," says Heathfield. The approach may be irritating to employees who habitually max out their sick leave, but they are the minority.
A successful transition is all about how well you communicate the advantages to your staff, in the experience of Chuck Murphy, associate vice president for human resources at the University of Rochester, in Rochester, N.Y. More than 10 years ago, he moved about 8,000 hourly staff members of the University Medical Center—primarily nurses, clerical workers and lab technicians—to a PTO bank while making sure it was perceived as a benefit equal to that of the university’s salaried academic staff, who remained under the old system.
"There was the perception among senior leadership that too much money was being spent under the current sick leave program, which operated under a ‘use it or lose it’ policy. Because they could not roll it over, many people were calling in sick toward the end of the year, while the more dependable employees were having to cover their shifts," Murphy explains.
Murphy and his colleagues built a plan that supports those who get sick and need PTO, but rewards those who don’t use it—by buying back unused time. "At the end of each plan year, employees can cash out their unused PTO dollar for dollar or can put it into their retirement accounts. Most go for the cash," he says.
As in many organizations, medical center employees are not required to use PTO in blocks of full days but can take it in increments as small as an hour. And having the possibility of getting extra pay at the end of the year really sold it.
The university fills each employee’s PTO bank at the beginning of the year with 40 or 36 days, depending on whether they work every day or in 12-hour shifts three days a week.
Because the PTO bank offers fewer overall days than the previous sick and vacation leave policy, conveying the advantages to employees was the main challenge, Murphy says.
In the first year, use of unscheduled leave dropped dramatically, he reports. "The fact that we have not had to make very many adjustments to it over the past 10 years suggests we listened well and designed a plan that really meets employee needs."
In general, supervisors find that PTO cuts back significantly on unscheduled absences, says Heathfield. "If you have a wedding to go to on the weekend, now you don’t have to call Friday morning to pretend to be sick or that your grandfather has died—for the third time."
PTO doesn’t eliminate unscheduled leave, however, and there will always be those few employees who game the system. "So, you still want to make sure unscheduled time off is captured in some way," Heathfield adds. Some employers have tighter attendance policies than others, for example, requiring a doctor’s note after two or three consecutive unscheduled absences.
Company policies on carrying over PTO year to year vary. Some don’t permit it; others do. Pinnacol allows employees to roll over a full year of accrued leave. The policy fits the company’s character of being family-centered. And many employees benefit from using accrued PTO for parental leave. "A lot of people like to have that safety net and see it as a really positive benefit," Muir says.
More typical is limited carryover of one to four weeks. This policy limits the amount employers have to pay departing employees if, whether under company policy or state law, they would have to pay out accrued PTO.Under a leave system with separate categories, unused sick time is not paid out, so a combined leave system can end up costing companies more. For larger organizations, this can add up. That’s one reason the University of Rochester doesn’t allow PTO to build up, preferring instead to buy it back from employees. "Those dollars are more than offset by reducing unanticipated overtime to cover shifts," Murphy explains.
PTO can be accrued every pay period or preloaded at the beginning of the year—an employer’s choice. Either way, employees must manage their "bank accounts" to make sure they have positive balances if illness strikes.
Inevitably, some employees will not have enough time in the bank when they need it, and HR leaders must determine how to handle leave in those situations. "Before we approve leave without pay, we look at the reasons why the employee has zeroed out," Muir says. "Sometimes it is due to family or medical leave; sometimes it is simply poor management. The latter can become a disciplinary issue, and our managers know they do not have to approve unpaid leave."
Codere strongly cautions against letting employees borrow against future leave. "That just becomes a nightmare if they resign before it is paid back."
Perhaps the most common employee misuse of PTO involves employees coming to work sick because they do not want to dip into their perceived "vacation time." They infect co-workers, and productivity drops. "As an employer, you have to send them home, and then you have to figure out how you will charge the time to them since it was forced," Heathfield says. "It is annoying, since the point of PTO is that you do not have to worry about treating employees like children."
A ‘Wary Eye’
Even as PTO banks are gaining popularity across all industries, Muir is seeing a slight pullback because of potential federal legislation regarding mandatory paid leave. She notes that updates to the Family and Medical Leave Act and the Uniformed Services Employment and Reemployment Rights Act now being considered may put employers in a situation where government can decide when and how PTO is paid out. "Employers are watching with an extremely wary eye to see how this will affect their leave policies," she says.
Other employers may be holding off because of the costs they may incur from having to pay out PTO days when an employee leaves, since they currently aren’t obligated to pay out accrued sick leave. And some, Codere says, "just don’t like change. They have a system that works, so why fix it?"
In addition, she says, "paid-time-off banks encourage an atmosphere of employee independence and maturity," so they "may not be the right flavor for companies with more closely managed cultures."
Nonetheless, Codere has seen the policy successfully applied across all types of workplaces. "I have not found an industry where it doesn’t translate. It just has to be managed well."
The author is a writer and editor based in Martinsburg, W.Va.