PHCC Educational Foundation
Personnel e.bulletin for July 2010
Benefits Showdown: Traditional Leave vs. Paid Time Off
What is the Best Option for Your Company?
Prepared for the PHCC Educational Foundation by TPO, Inc.
When doing a review of your leave benefits, you may have wondered about whether to
change from a traditional paid leave to a model known as Paid Time Off (PTO). A PTO
policy combines vacation leave, holiday leave, sick leave and personal leave into a single
bank of leave days. Suppose you provide your employees 6 paid holidays, 10 days of
vacation and 8 sick days per year. Under a PTO plan, the employees would be credited
with up to 24 days paid time off. In other words, the PTO policy creates a pool of days
that an employee may use at his or her discretion. This arrangement allows employees the
flexibility to use PTO to support their work-life balance, their personal beliefs, absences
for health care or illness and their own needs to provide a break from work.
What are other companies doing? There were approximately 800 responses to Alexander
Hamilton Institue’s (AHI) 2007 Survey Of Traditional Time Off And PTO Program
Practices. Just over half of respondents completed the survey designed for users of
traditional leave programs while the rest filled out the PTO-specific survey. You can get
the most recent version of this survey by clicking here.
Survey Results:
In some areas, the differences between PTO and traditional programs were insignificant.
 About two-thirds of the PTO group offered employees the equivalent of 7-10
holidays; a similar percentage of the traditional leave group offered the same
number of holidays.
 Majorities of both PTO and traditional groups do not allow employees to borrow
unearned time.
 By substantial margins, both groups allowed carryover of days from one accrual
period to the next.
In other areas, the differences between programs were more apparent.
 When it came to the length of waiting periods before new hires could take paid
leave, the highest percentage of PTO employers make new hires wait 31 – 90
days. The most popular length of waiting period for traditional employers was
181-365 days.
 About one-third of PTO responders pointed to a half-hour as the smallest
increment of time that can be used from their PTO program. A third of the
traditional leave group chose a half-day as their smallest increment of vacation
time.
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The survey further found that smaller organizations are likely to give less PTO time than
larger organizations. This pattern did not hold true when comparing the patterns for
traditional leave employers. In their case, the smallest employers were more generous
than mid-sized organizations, but not quite as generous as the largest employers.
Implementing a PTO Program – the Pros and Cons:
There are a number of pros and cons to implementing PTO programs to replace
traditional leave programs. For example, in traditional leave programs, time is
segregated into categories including vacation, sick and personal time requiring the
employer to track both the time being taken off and the reason it is being taken. If there is
an abuse of sick time by an employee, the employer is required to address it by closely
reviewing the reasons for the sickness-related absences and disciplining employees for
excessive absenteeism. By contrast, with PTO, employers are able to get away from
monitoring the circumstances of an employee's absence. By creating a bank of paid time
off, employees can use their leave for any reason including the freedom to meet their
individual needs such as religious holidays. Once PTO is exhausted, time off is unpaid
and subject to the attendance discipline policy.
Another valuable aspect of PTO, and the most common approach, is to essentially reduce
the amount of leave available. When creating the PTO program, the actual PTO hours are
determined by reducing the combined value of traditional leave hours. An employer can
also use the conversion as an opportunity to clean up carryover practices. For example,
while vacation leave may be carried over in full to the new PTO program, sick leave days
and personal days may be reduced producing a net smaller number of available leave
days for the employee in the new program.
There are a number of further practical and legal considerations to consider before
converting from a traditional sick pay program to a PTO plan.
Timing:
Before changing your leave policies, plan your dates carefully. The changeover date
should be coordinated with either the end of your leave year or some other workplace
change that impacts employees’ schedules. The obvious choice is converting to PTO
bank at the end of the accrual year, since most employers administer their time off
programs on a calendar/fiscal year. For employers using anniversary date leave years, it
is too difficult administratively to run dual programs, so they should pick a date to
convert all employees at the same time.
Dealing with Accumulated Sick Time:
Some employers allow accrued unused sick leave to be carried over from year-to-year in
order for employees to save for a rainy day. The accumulated leave is often used in the
following ways: to help satisfy a waiting period for Short/Long Term Disability
(STD/LTD); as a pay out upon separation typically at a reduced percentage (50%); to
cover extended absences such as maternity leave; or simply forfeited. Employers may use
the opportunity of a PTO transition to clean up their sick leave balance sheet, including
either paying out a portion of the accumulated time at a reduced percentage or converting
the time, again at a reduced percentage, into the PTO accumulation bank (assuming the
new plan allows for a bank). Be careful, however, as your flexibility in dealing with
accumulated sick time depends on the written policies in your current traditional plan.
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Exhausting PTO:
Employees who use all of their PTO are unpaid for additional absences and can be
subject to discipline under your company’s attendance policy. However, in pursuing
unpaid leave and related disciplinary actions, employers need to be aware of the
prohibition on docking exempt employees’ salary (Fair Labor Standards Act), the
necessity of providing additional unpaid leave as an accommodation under the Americans
with Disabilities Act (ADA) and the Family and Medical Leave Act (FMLA), and
avoiding potential discrimination claims, also under the ADA.
Integrating STD and Other Leave Programs:
Often traditional sick leave policies are designed to dovetail with the waiting period for
STD benefits. For example, the traditional plan may allow for a maximum accrual of sick
leave that equals the elimination period under the STD plan. If PTO is implemented,
reducing the amount of allowed carryover can cause a disconnect between these benefits.
However, one way around this is at the time of transition, to allow any employee with
accumulated sick time to keep that time in a bank to satisfy the elimination period in the
event he or she becomes eligible for STD benefits. Otherwise, PTO or unpaid time is
used during the waiting period. Another way employers can address hardships is by
creating a PTO donation program where employees may donate unused PTO to a fellow
worker who needs additional time to satisfy a waiting period for disability insurance to
kick in.
Advantages of a Paid Time Off Policy:
Here’s a quick summary of how PTO plans can provide advantages to either employees
or employers:
Employers
Employees
PTO plans can make your company more
Employees are treated as adults who are
attractive to prospective employees and
entitled to use PTO at their discretion
make it easier to retain current employees
without oversight.
by increasing the control that employees
have over how they use their leave.
When employees are given ownership of
Employees value the flexibility in
paid time off, they are less likely to abuse
scheduling time off from work, whether it
the leave and cause disruptions at work.
is for vacation or other purposes and tend
to be more careful with its use when it is in
their control.
PTO can be easier to administer by
eliminating the need to track different
classifications of leave.
PTO promotes a more equitable workplace
by allowing employees to meet diverse
needs such as observing non-Christian
holidays
PTO programs tend to address the basic needs for employers and employees in that they
meet a common need for employees to strike a better work/life balance, which results in
more productivity for the employer.
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Disadvantages of Paid Time Off Policies:
Employers
Employees tend to view PTO as a benefit
and use all of the time off, whereas they
may not have in the past.
Employees tend to reserve all PTO time as
vacation and come to work when they are
sick.
With the freedom of not having to explain
their reasons, employees may be absent
more frequently without notice. This can
be controlled somewhat by requiring prior
approval for most PTO.
Companies may experience higher benefits
costs. Employees who never used their full
allotment of sick leave may use all of their
PTO every year.
With PTO, sometimes employers must
payout more leave at termination. Keeping
vacation, personal, and sick leave separate
can cut down on the amount of time that
needs to be paid out.
Employees
Some research shows that employers who
adopt PTO may give employees fewer
overall days than they had previously,
and/or new employees accumulate PTO
banks more slowly than longer-term
employees who had time grandfathered.
Employees may come to work sick and
jeopardize their health.
Employees may be exposed to more
workplace illness if co-workers come to
work sick.
Employees may not manage leave well and
not have the protection of paid time off
when most needed like a family or heath
emergency.
Implementing a PTO program requires a strong administrative infrastructure, a carefully
designed transition program, tracking systems, training of supervisors and comprehensive
employee education and communication efforts. Of particular importance to the success
of a PTO program is discouraging unscheduled absenteeism by communicating the rules
of PTO to all employees. Those employees who understand that they are being given
additional personal time over which they have control are more likely to use the time
wisely.
The Bottom Line:
Paid Time Off (PTO) can be a powerful recruiting and retention tool. It can also lead to
abuse. To effectively manage a PTO program you should:
 Make sure it suits your company’s culture.
o A PTO plan works best in a company where there is already some type of
flexibility in how employees use leave time; where employees demonstrate
responsibility for the quantity and quality of their work.

Establish clear usage guidelines prior to implementing your program.

If you require employees to request PTO in advance except for emergencies, you
must define what is considered an emergency situation.

Manage the people, not just the PTO. If an employee is sick they should stay
home. If they come to work sick, send them home. You have an obligation to
protect the rest of your employees from one who is contagious.
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Finally, how a leave program is communicated to managers and employees is critical for
the success of whichever program you choose. An employer introducing a paid time-off
program will need to establish procedures for effectively monitoring its use and should
review personnel policies dealing with absenteeism. For traditional plans, it is important
to discuss the company’s philosophy, i.e. the necessity of fixed holidays that correspond
with business needs, as well as monitoring leave categories, especially those that require
reasons. Both types of plans need to be clear on how to handle legally required additional
unpaid time off and how excessive absenteeism will be addressed.
This content was developed for the PHCC Educational Foundation by TPO, Inc. (www.tpoinc.com). Please consult your HR professional or attorney for further advice, as laws may differ
in each state. Laws continue to evolve; the information presented is as of June 2010. Any
omission or inclusion of incorrect data is unintentional.
The PHCC Educational Foundation, a partnership of contractors, manufacturers and
wholesalers was founded in 1987 to serve the plumbing-heating-cooling industry by preparing
contractors and their employees to meet the challenges of a constantly changing marketplace.
If you found this article helpful, please consider supporting the Foundation by making a
contribution at http://www.foundation.phccweb.org/invest.
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