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Things to Think About When Crafting PTO Policies

PTO Policies

Paid time off (PTO) is one of those benefits that varies from one employer to the next. Some companies are very generous with their PTO while others do not offer it at all. Still others fall somewhere in between the two extremes. The one thing they all have in common is the need for clear, concise PTO policies that are documented in writing.

BenefitMall says it is always a good idea to make sure PTO policies are clear prior to hiring new employees. They say that companies without written policies would do well to establish them. Those with policies already in place should review them from time to time to ensure what is written on paper aligns with day-to-day practice.

Below are some things to think about when crafting PTO policies. Management should consider consulting a legal professional if there are any questions about whether or not proposed policies are in compliance with the law.

No Federal Mandate

At the top of the list of things to consider is the fact that there is no federal mandate for PTO in the U.S. PTO is completely voluntary. Those companies wishing to offer it may freely do so with few restrictions. Those that don’t want to offer PTO do not have to.

The lack of a federal mandate puts the onus on employers to decide how valuable a benefit PTO is. Generally speaking, PTO is a fairly common benefit among employers with a large body of workers who make more than minimum wage. Where you don’t see PTO all that much is in businesses that employ mainly teens, college students, and hourly workers without college degrees.

State PTO Laws

States do not mandate PTO either. However, most do have laws in place governing some key aspects of PTO among companies that decide to offer it. For example, all but three states allow employers to implement ‘use it or lose it’ policies for PTO. Such policies state that employees must use all of their PTO before the end of the year or they lose it. Among the 47 states that allow such policies, a small handful include exceptions in their laws.

Another difference at the state level involves whether or not terminated employees should be compensated for accrued PTO in their final paychecks. More than a dozen states mandate such compensation. California is a good example. The Golden State requires all accrued PTO be paid in a terminated employee’s final paycheck. State law considers PTO a form of wages.

How PTO is Accrued

Once a company understands the impact of state laws on PTO, the next step is to determine how PTO will be accrued. This includes the availability of vacation time, sick time, and personal days. Some employers base accrual on the total number of hours worked. Others calculate PTO based on days, weeks, or pay periods worked.

The way in which PTO is accrued is less important than defining a method and sticking with it. A company that chooses the hourly accrual method should put it in writing and apply it evenly to all employees. If there are any exceptions, like accrual for non-hourly, salaried workers, those exceptions should be clearly spelled out in the company policy.

Management also needs to consider a couple of additional casings: whether or not unused time rolls into the next year and, if not, whether a cash payment will be made to compensate for unused time. The more details spelled out in a company’s written policies, the better.

Does your company offer PTO? If so, do you have written policies in place?