Law: Is paid time off right for your company?

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Published: February 24 2013 | 6:00 am - Updated: 28 March 2014 | 11:51 am in
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A shorter workweek, earlier retirement ages, increase in vacation time and paid holidays — is anyone working anymore?

One of the most overlooked and expensive benefits of employment is time off from work. For example, the “traditional” workweek is 40 hours a week, with Saturday and Sundays off.

In addition, most employers honor the 10 federal holidays.

Employees also generally get paid time off for vacation, sick leave, bereavement leave, jury duty and perhaps birthdays.

Unpaid leave also includes Family and Medical Leave Act leave, parental leave, military leave, personal leave and leave for religious observances.

Studies show that employees who have lives outside of work are healthier, more productive and stay on the job longer than their supposedly miserable workaholic brethren.

Such paid leave also may be an important recruiting and retention tool.

However, while all these leaves may be necessary to support your employees’ ability to balance their work and personal lives, they often create an accounting and timekeeping nightmare for your human resource staff.

As a result, many employers are considering an alternative to traditional paid and unpaid leave that consolidates all of these various leaves — vacation, sick and personal days — into a single leave generally called paid time off.

For example, many employers offer their employees 10 paid holidays, two weeks (10 work days) vacation, 2 personal days and 8 sick days per year. Under a PTO plan, the employee could be credited with 30 days paid time off.

Thus, instead of having to designate someone’s absence as “sick leave” or “vacation,” an employer merely refers to any type of leave as PTO.

While around 59 percent of U.S. workers receive paid time off in the form of vacation, sick leave, etc., one report claims only around 20 percent of American businesses have PTO, and are typically larger employers.

For example, Travelers Insurance has a PTO program to be used for vacation, personal illness, family members’ illness, holidays that are not celebrated as company holidays, children’s school events or other personal business.

Aetna likewise has a PTO policy, but it just announced it was cutting PTO for longtime employees from 33 to 28 days to reduce expenses and match the industry standard for time off.

PTO’s advantage is easier record keeping and less headaches associated with second guessing whether someone is really “sick.”

Employees no longer have to explain how they are using their time — they just designate it PTO.

The downside is the possible abuse.

As an employer no longer knows the reason for the time off, and now officially does not care, employees are gone more frequently.

Remember: PTO allows the employee to make leave decisions with no questions asked.

As most employees are generally healthy and never use all their sick leave, why not allow them to take the difference as a mental health break?

But if your company likes to retain tight control over leave decisions, PTO is not for you.

PTO also may be more costly, as employees who never use their full allotment of sick leave likely will use all of their PTO every year.

There are also legal issues with PTO. What happens to PTO if an employee is laid off, fired or quits?

Iowa law requires that vacation, holiday, sick leave and severance payments must be paid to an employee pursuant to any contract or policy by the next regular payday.

Using the above example, what if the employee with 30 days of PTO quits in February 2013 and demands all his unearned PTO for the year?

To avoid a lawsuit, an employer must draft its PTO policy consistent with Iowa law on payment of such benefits.

Your PTO policy must explain how PTO is earned, how it is accrued and paid out, and what happens when the employee leaves employment.

The safest way to do so is to award it on a monthly basis on the first day of the month.

Next week, we’ll take a look at some additional issues an employer should consider about PTO.

Wilford H. Stone is with Lynch Dallas Attorneys at Law, wstone@lynchdallas.com

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