Bundling vacation pay & sick pay into one paid time off (PTO) bucket simplifies administration while enhancing flexibility & accountability.



As employee disengagement continues to rise, per Forbes, and the U.S. increasingly trends toward states requiring paid sick leave, bundling vacation pay and sick pay into one paid time off policy (PTO) may become part of the solution. This approach offers a bucket of time to employees and allows them to decide how to use it.

Benefits of a PTO Policy

The pros are easily identified. A PTO approach allows HR departments to consolidate tracking for both vacation and sick time. Also, the organization no longer has to police their employees as they can choose how to use their paid time away from work. It's an added benefit to those employees who don't get sick often, as the time is theirs to use as they see fit.

The shift also subtly requires the organization to encourage healthy use of PTO time to promote lower stress and better work-life balance. If higher accumulated balances sit on the books, business leaders will be motivated to ensure those days are spent appropriately.

When this change in policy is communicated well and with sensitivity, it also provides the opportunity for employees to feel more empowered. Their PTO bank is theirs to manage across any needs that might pull them away from work. The conversation becomes less about attendance and more about performance. Are employees setting good performance goals with their managers and meeting those goals on a regular basis?

Drawbacks of a PTO Policy

There are, however, some potential pitfalls. Organizations moving to a PTO bank need to know how to manage employees who burn through their PTO early in the year and don't have time left when something unforeseen arises. Moving to a bundled PTO approach may also have a financial impact. Some states require certain types of time off to be paid out upon separation of employment. If sick days and vacation days are bundled, it may increase the overall payout required. Remember that a PTO policy will have to comply with state sick leave laws and also laws governing vacation and PTO policies.

The change in labels may also lead to unexpected changes in behavior. A person unwilling to spend sick days for minor ailments might begin to use them when the same days are labeled paid time off. You may also get some initial resistance from employees who view the change as forcing them to use vacation time for sick days.

The WorldatWork Paid Time Off Programs and Practices survey reveals that 43 percent of companies offered PTO in 2016, a number that has steadily risen from 28 percent in 2002. The report indicates that 51 percent of private companies offered PTO last year.

As states begin to introduce mandatory sick pay, a paid time off policy can be an elegant solution for employers who have not traditionally offered it. Although it will have to be weighed against ensuring compliance with various state sick leave laws. In the end, giving employees some flexibility in managing their lives outside of work, can help to support a more positive, engaged and accountable workforce.

Stay up-to-date on the latest human capital management insights for finance leaders: subscribe to our monthly e-newsletter.

Tags: Culture innovation