How to Approach Paid Time Off

Time-off benefits can be a very valuable part of any employee benefit package. While employers aren't legally required by federal law to give employees days off for federal or state holidays, it's a smart way to retain employees and to provide job satisfaction. (There may be state laws that affect time off, however--check local laws.) Employers can specify which holidays employees can take off. It's the same for vacation: There's no federal requirement, but smart employers grant paid vacation, and sick days too.

Still, time off is a particularly delicate subject for small businesses: If an owner has only two employees, one of whom goes on vacation, a third of the total workforce is gone. Planning and coordination are critical when offering vacation benefits.

Companies can use different kinds of systems for time off. Some often have a set number of vacation days and a separate number of sick days that employees may use without losing pay. But today, many companies are using a more catch-all system of paid time off — all vacation days, sick days, and personal days are lumped together.

Benefits of using this bank of time-off days method include:

• Employees see it as a benefit if communicated well. It feels like an improvement over separate accruals because a worker can theoretically take more vacation time if he or she doesn't get sick often.
• Employees no longer have to make excuses when they want to use a sick day but aren't ill enough to see a doctor.
• The system often is easier to administer up front — there's no question about which accrual the leave comes from. Simpler administration can mean cost savings and consistency in leave tracking.
• Employee burnout can be reduced if employees are encouraged to use these days.
• Employees report feeling more empowered — not having to justify each day off, taking their days as needed, and allotting vacation, sick and personal days as they see fit.

Issues and drawbacks:

• Some employees may feel slighted if sick days weren't previously monitored closely under a system of separate categories. They may feel penalized by having sick days count against their days off.
• This system could mean higher financial liability when terminating employees. With separate accruals for vacation and sick days, employers are usually required to pay out only accrued vacation days, not unused sick days. This way, the whole accrued bank must be paid out.
• Employees tend to view the bank as vacation days and so may take more time off. But while extra days taken as a vacation can benefit employees and employers alike, they also can mean more time that must be covered by colleagues. Employers may have to modify work practices to accommodate this.
• Employees may be reluctant to take sick days if they see this as lessening their vacation time. This means working while feeling ill.

If a company decides to go with separate vacation and sick day system, then the amount of vacation time that employees are given is really up to the owners. Most employers link the length of time that an employee has worked for them to the amount of vacation afforded. Ten vacation days might be offered after one year of service and increased by one vacation day for every year of service. At milestones of service — five and 10 years, for example — employees earn an additional week of vacation.

Because small businesses are more affected by vacationing employees, decisions need to be made about how to arrange vacations. If employees want to take all their vacation days at one time, that takes more planning than taking just a few days here and there. What if employees want to take a vacation during a busy period? You need a policy, and a fair system, in the event two employees want to take the same week off.

Generally, paid sick leave benefits and personal time off are not required by law. Unpaid sick leave, however, may be legally required if a business is subject to either federal or state family and medical leave laws

Keeping track of who is off work, how much time each employee has used, and the vacation schedule for the business year can get complicated. Organizing it is the tricky part. Employers want to reduce the time they spend tracking time off. Let us know if we can help set up a fair and easy-to-monitor system for you.