Tips for creating and managing a paid time off program

Companies traditionally offer employees paid time off in the form of a set number of vacation and sick days. This practice has evolved into giving employees a specific number of personal days to use as they please, with the number of days awarded tied to tenure. Here are some factors to consider when offering paid time off.

Decide how employees can use personal days

Many companies no longer limit the use of personal days to vacations or recuperating from illness. This is known as “unlimited paid time off,” meaning there are no limits on the reason for using personal time. Employers know that workers need often need to take a half or full day off from work to take a child to the doctor, attend a religious ceremony or even attend a job interview. Requiring employees to tell you why they are requesting a personal day is often seen by employees as an invasion of privacy, especially if the request is for a medical reason. Consider a “use as you please” policy that allows employees to take a half or full day at their discretion, along with longer breaks.

Decide who can approve PTO requests

Set a policy for how and when to submit paid time off requests so that your company has enough lead time to prepare for an absent employee. If a staff member calls in sick, that can’t be avoided. Vacations and other personal days should be requested as far in advance as possible. Let each employee know the person at your company who can approve a paid time off request and how to submit the request. To avoid miscommunications, these requests and approvals should be put in writing via an email, printed memo or company PTO request form.

Use it or lose it vs. cash reimbursement

Some companies allow employees to earn cash for days they don’t use. For example, a company might pay employees 50 percent of one day’s wages for each day the employee doesn’t use. The company gets a half a day of free work, while the employee gets some extra cash she would lose if she took all of her personal days.

Some companies don’t want to increase the risk of employee burnout by encouraging workers to go for years without taking a vacation. Other businesses don’t have the money to pay employees extra for personal days not taken.

Consider instituting a PTO program that allows employees to cash out some unused personal days, carry forward some unused days to the next year, but lose some days not used. You might limit the use of days carried forward to 90 days after the new year to encourage employee vacations.

Whichever policy you decided to set, check with an attorney to make sure you do not violate state or federal labor laws regarding unused paid time off reimbursements, especially when an employee quits or is terminated.

Encourage shorter vacations

Not everyone wants to take two weeks vacation in a row, or even seven days. Allow employees to take several shorter vacations, or at least two three-day weekends. This can help them recharge their energy levels and avoid burnout.

How much PTO?

The amount of paid time off you give employees depends on your market’s or industry’s competitiveness for employees. Typically, 10 days is standard for a new full-time employee. Employees must work a specified number of days before they start using the paid time off. For example, an employee might be able to take two days off after working 90 days, five days off after working six days, or 10 days after working one year.

New employees should be encouraged to take vacations by allowing them to take their 10 days before they have worked at the company one year. However, if they leave the company before their vesting period, they will have to reimburse the company for any days taken. For example, if an employee who has worked for the company for nine months takes 10 days off, then leaves the company before completing a full year, his or her final paycheck would be reduced based on the extra days taken but not earned.

Put it in writing

Your paid time off program should be part of your employee handbook and/or benefits handouts. Make sure employees read your policy and sign a form acknowledging that they have read, understand and agree to your policies. Have them re-sign a form anytime you update your policies. Be sure to communicate any changes via email, your company newsletter and/or in a company meeting.