I spoke about Paid Time Off (PTO), Systems during a recent audioconference. Following the seminar, I received the following question from a participant. I imagine many others have had similar concerns about making the switch from a traditional time-off system, where vacation, sick, and personal time are all separate and treated differently, to a PTO system, where all time off is lumped together in a “bank” from which the employee can withdraw, regardless of the reason.
Q: We are considering switching to a PTO bank for paid time off. We discovered that we have some employees who have built up huge banks of personal and sick time that we have traditionally allowed to be carried over from year to year. Until recently, we “bought back” sick time at the end of the year, so long as the employee had at least five years of service and had accrued a minimum amount of sick time. Now, we pay out unused vacation and personal time but sick time is forfeited. As we plan our PTO policy we wanted to limit the carryover of PTO to 10 days (80 hours) at the end of our fiscal year.
Can you provide me with examples of what other companies have done when implementing a PTO system to handle situations where people have extremely large banks of time to be converted to PTO?
Many employers decide to reduce the amount of hours that may be paid out when they switch to a PTO system because the understanding is that PTO is a richer benefit. So the first thing to do is to determine whether you will permit payout or rollover at all. (Note that the laws vary on the permissibility of “use it or lose it” policies from state to state.) Once you establish a maximum number of hours that can be carried over into the next fiscal year, you’ll have to decide what to do with any time in excess of the minimum. There are a number of viable ways to handle these excess hours. If possible, try to consider allowing employees to choose from several options. Here are just a few:
1. Pay out cash for the PTO hours over the maximum number at a discounted rate, similar to your buy-back plan.
2. Designate the excess hours as sick-leave-only time. This would never be paid out or rolled over from year to year. But if an employee has reason to think he or she may need the sick time (for example, for maternity leave), this would be a very desirable alternative.
3. Forfeit any time above the minimum.
4. Permit a certain amount of hours to be carried over based on the length of service; i.e., the longer the individual has been employed, the more time he or she may carry over.