Structuring a Paid-Time-Off Policy

Businesses describe their approaches to providing sick leave, personal days, vacation time, et cetera. June 8, 2008

I am working on restructuring my sick leave policy and would appreciate any examples of a policy that provides some health security for my employees while avoiding being an incentive to take time off. My current policy was designed for the ideal employees that I used to have...

Forum Responses
(Business and Management Forum)
From contributor T:
One idea that we used was to allow up to five paid sick days during the year. If they did not use them, they could take more time off in between Christmas and New Years. Otherwise they had to work then.

From contributor W:
Similar - call it all PTO. They can use it for vacation or sick time. Doesn't matter to us. We take off from Christmas to New Years, and if someone has unused PTO, we pay it out then. That way more people will see those few days as vacation time.

From contributor S:
A friend of mine helped develop a training program for the St. Vincent De Paul. They had a fairly straightforward program for dealing with this issue. Each employee accrued a certain amount of personal time each month and this went into something called a PTO bank account. If an employee was sick, late to work, or had to leave early for any reason at all, and they had PTO in the bank, they were paid for the full day and this amount of PTO was subtracted from their bank account.

The employee was essentially in charge of how much time they wanted to take off and when they wanted to take it off. If they wanted to have a week off for vacation they needed a week's worth in the bank. If they wanted to dribble away the vacation 45 minutes at a time, they could do that too. What they couldn't do was be consistently late or chronically absent and still end up with a vacation.

You should assume in any event that they are as good a capitalist as you are. They will recognize their self-interest in any transaction in about one nanosecond.

From contributor M:
PTO is what we do also; works very well after trying various other things. We have a certain amount of holidays that the shop will be closed and work is shut down. If you have piddled your PTO, you will not get paid for those days. Most guys can get a nice paid vacation, a couple days around the major holidays, and a few in reserve for emergencies, sickness, kids, whatever.

From contributor G:
My wife has PTO where she works. She gets 1 hour of PTO for each 9 1/2 hours she works. Then at the end of the year, she will cash in 50 or so hours and she is going to take another 40 off this month. But she still will have close to 200 hours left. What she likes best is, if someone is out of hours due to medical problems, she can give them some of hers. One of her co-workers has a sick baby in a hospital 75 miles away and was out of PTO, and two weeks ago she gave him 40 of her hours.

From contributor J:
"My wife has PTO where she works. She get 1 hour of PTO for each 9 1/2 hours she works."

No wonder we can't compete with the Chinese.

From contributor C:
Good chance she has a government job, eh? How many of you guys are putting out 210 hours a year to your people?

From the original questioner:
I don't compete with the Chinese. My longest employed people get about 160 hours vacation and sick leave combined, plus paid holidays, very close to 210. This is something I can be proud of rather than being proud of getting my employees to work for less. I couldn't do what I do without a dedicated, long term oriented group of employees. You can't buy this cheap. What you can pay your people in wages and benefits depends on what you are trying to accomplish, and what you are willing to settle for.

From contributor G:
No, it is not a government job. She has been there almost 25 years, and is at the top of what her per hour pay can be. The PTO includes vacation, sick, and holiday pay. She also gets 401k match and profit sharing. This is what it takes to keep the ideal employee.

From contributor S:
I can only imagine that the profit sharing part of your wife's remuneration must be huge. Any company that can afford a benefits package like this for all of its employees has to be making money hand over fist.

Every pay package has to be structured appropriately for the industry it is applied to. The argument that a surgeon's base wage might be $250,000 per year does not apply here. The questioner's crew doesn't perform surgery, they do millwork.

The pay and benefit structure has to be such that there also is a profit to this, else just like an automobile without oil, his company will pull over to the side of the road and continue no longer.

From contributor A:
Benefits attract quality employees, well rounded benefits attract employees that want to stay. One would hope that the employees that stay may produce more than ones that will accept less. They also make it to work on a regular basis.

I am in the same ballpark of benefits as the questioner and we are shipping into China, so the argument that I will be left by the side of the road doesn't fly. I am competitive with my competition.

In California we use PTO for salary exempt employees. Hourly employees have to accrue the time per benefit so they get paid vacation, paid holidays and sick time all separately. For salaried employees, it's all in PTO; then we don't care how they use it. We also have 401k with matching, profit sharing, health, disability, paid holidays, paid vacation, and safety awards (up to $500).

What do you think the cost of attracting and retraining is per employee, and the loss of production when you start a new employee?

If you have a product line that can be standardized and you can train lower skilled people quickly, then your retention costs may not matter as much and your choices on the benefits you offer may be competitive with the market you are in.

In the class A office space market, you are dealing with corporate America and they have certain expectations and understand the costs. We are also competing against Mexico on some contracts and there is a higher cost to get goods into the country than you would think.

From contributor S:
Contributor A, I couldn't agree with you more about benefits. A common declaration (to the point of being a cliche) is "the pay sucks, but the benefits are great!" It's all in the eyes of the beholder.

A dollar an hour raise is just a dollar an hour. A $1000 bonus (!!!) is 50 an hour. Which do you think gets noticed more? An all expense paid trip to Hawaii is the same as a 50 raise. Which one do you think will get bragged about?

My point is that there is a certain amount of dollars that can be spent on labor and still remain competitive and profitable. Your point is that if you market these dollars as benefits, you get more traction from them. I think we're both right.

My goal is to cut my costs in half and at the same time double wages. For the long term health of your company, you want people relating personal success with company success. Microsoft didn't just hire people with brains the size of basketballs, they cut them in on the success. (They probably also emphasized the free soda pops in the cafeteria.)

From contributor I:
We went to PTO vs. sick leave because it was too difficult to decide who was sick or just playing hooky. All vacation and PTO is accumulated .77 hours per 40 hour week. An employee who has 39.85 hours on the clock or less does not accumulate the credit. We also have a flex schedule so no one has an excuse about being 15 minutes short at the end of the week. We also require employees to work the regular workday before and the day after a holiday in order to receive holiday pay. Vacation can be taken in 1/2 day increments and PTO in 2 hour increments.

Over the last 15 years we have had 3-4 situations where valuable employees have had unusual medical crises that exhaust both PTO and vacation. We have covered these employees in every situation and made sure they had a full pay check/never regretted going out on a limb because it comes back to you in loyalty. Often a bonus is more appreciated than a raise, especially if they are receiving a wage comparable to the going rate in the region.

From contributor T:
Contributor J makes a good point about working the day before and after holidays. This should be in your policy as well. Just curious, are you putting together an employee handbook?

From the original questioner:
Day before and day after holidays is in my policy. I have a handbook, I'm just trying to update it and fix some problems we have been having with sick leave/holidays/vacation and attendance in general.

From contributor J:
My guys get seven paid holidays, five days vacation after six months, ten days vacation after one year, no sick, tardy, or personal days.

From contributor G:
Why not after one year you call the added 5 days PTO. They can use it for vacation, sick or personal days. They would have to plan the days off beforehand, except sick days. It would give them more control and not cost you any more.

Think about it this way. You wake up feeling like crap, not so bad to go to the Doc, but not fit to work. At most places, to even get the day off unpaid, you must go to the Doc. That costs you money. Many people go on to work, they stay sick for a longer time, other people may get sick from them, and their work will be sub-par.

At a wood manufacturer close to me, last month two people came to work sick and then puked on the line. 10 or so workers were idle for over 1 hour while it was cleaned up and over $1000 in wood had to be tossed. When set up right, PTO can help avoid things like this.