Employers - Should You Change Your Vacation Policy?

Employers - Should You Change Your Vacation Policy?

June 25, 2020

Summer is finally here, and odds are many of your employees are planning their vacations. As pointed out in an article in Employee Benefit News, in recent years employers came to the realization that they need to offer more time off to compete for talented workers.

Even though the average amount of time an employee takes off has been increasing for the last few years to 17.2 days, a good number of workers are still not taking off all the time they’ve earned.  

So ... what type of time-off policy works best — a paid time off (PTO) bucket or a traditional vacation and sick leave program? If your choice is PTO, how much should you offer?

PTO seems to be winning out against traditional vacation and sick leave policies. According to a recent WorldatWork survey, 43% of companies offered PTO in 2016, up from 28% in 2002. The reason? Flexibility. Everyone’s called in sick to work feigning illness even though they weren’t actually ill; a bank of PTO eliminates that need.

PTO also might make employees feel like they’re being treated like responsible adults capable of managing their time off while still being productive in getting their job done. They may feel empowered having more control over their schedule and appreciate the work-life balance to manage doctor appointments, day care issues and any other issues that arise.

For employers, the advantage of PTO is improved absenteeism — 40% of employers that made the switch from vacation and sick time to PTO reported that employees were more present. Administering PTO also eliminates the hassle of managing vacation and sick leave policies.

While PTO is becoming more popular than vacation and sick leave, how much PTO employers offer is still a big question.

Some prominent tech companies have started offering unlimited PTO to their employees over the last decade in hopes of attracting and retaining the best talent.

These employers saw unlimited PTO as a win-win-win:

  • It eliminates time spent administering, tracking and enforcing a limited PTO policy.
  • It benefits employers financially — in traditional limited PTO scenarios, employees can often bank time off, roll it over from year to year and get paid out on it when they leave.
  • It increases employee engagement — your workforce might feel a greater level of trust to manage time off.

But for employees, the reality isn’t such a big win. Unlimited PTO can have some negative consequences.

Employees may struggle to figure out how much is too little PTO, and how much is too much. One way to combat this issue is to lead by example — executives should lead the way in taking an appropriate amount of time off and communicate it to the company.

Another potential downside is employees might take off less time than before. In several reported instances, employees who don’t have clear guidelines on what to do will take less time off — or no time at all. To tackle this issue, set minimum guidelines and communicate frequently to remind employees they should take time off.

Whether you opt for PTO, unlimited PTO or vacation and sick leave, communicate the policy clearly to your employees. Outline how employees can communicate their intention to take PTO — what’s the procedure for scheduled time off versus unscheduled time off? How can employees ensure that projects keep moving while they’re away?

Employers should also remind them of the policy at different times throughout the year, such as before summer begins and before especially busy periods for your company where employees are prohibited from taking PTO as business dictates.

Consider how you measure an employee’s effectiveness and your time off policy’s success. How will you determine that employees are taking enough time off? And what will you do about employees who may take time off and whose work suffers as a result?

Finally, don’t neglect compliance. No matter the type of policy you’ve created, ensure you’re complying with any paid-sick-leave laws; there are roughly eight states and thirty-two jurisdictions with such laws in place.

Before making a change to your time off policy, weigh the pros and cons and consider whether the program is a cultural fit for your company.