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Should Employers Use an Accrual Bank or Lump Sum PTO Strategy?

Should Employers Use an Accrual Bank or Lump Sum PTO Strategy?

It can be difficult to determine which paid time off (PTO) method might work best for your organization. Understanding which policy is right for you can have a huge impact on overall employee satisfaction. Your PTO strategy can affect your overall retention rates and your recruiting strategies Read on to find out what types of PTO policies are available, and which one might work best for your organization. 

 

What is a Lump Sum PTO Policy (Annual Allotment)?

Lump sum refers to a strategy whereby employees are given a set number of days per year. The days are given all at once, and may either expire at the end of the year or roll over to the following year. The date for either the expiration or rollover will typically be either the first of the year, or the employee’s hire date. 

Some employers may utilize a lump sum approach to supplement a compensation package. Offering an extended benefits package in this way can increase overall employee satisfaction, which in turn help’s overall employee retention. Once employees reach a milestone companies will often boost the total number of PTO days available to the employee. 

This could look like a 5 year tenured employee receiving an extra 5 days of PTO, moving from 10 to 15. This may also coincide with an employee promotion. 

 

What is an Accrual Bank PTO Policy?

The accrual bank method works a bit differently than annual allotment. Rather than receiving a lump sum of days that can be either rolled over or used within the year, employees will accrue PTO days typically on a quarterly or monthly basis. There is no rollover policy as the days are based on accrual as opposed to a yearly system. It is normal for a positive limit to be in place. In other words, there is a maximum amount of days that can be spent. 

For example, an employee with an accrual bank policy may receive 10 PTO days per year, earned monthly, up to a limit of 20 days.

 

What Other PTO Approaches Can Employers Use?

Another approach to PTO is the Unlimited PTO plan. This plan is based around employees deciding when they wish to take vacation. There are virtually no parameters outlining when or how much PTO and employee can use. The goal here is to provide employees the flexibility to choose the days they wish to take off, so long as they complete their work and the team is not suffering as a direct result of said time off

There are of course pros and cons to this approach, but many employers are shifting towards these plans in order to retain current employees and attract new candidates

This method is of course not an option with non-exempt employees. For those employers who are considered non-exempt, such as those who are hourly, you will need to utilize the lump sum or accrual method. This is due to overtime laws that are in effect. These laws cannot account for an unlimited overtime due to the strict nature of the laws. However, for exempt workers, or those who are salaried, consider the unlimited PTO option as a viable method that can benefit the morale of certain employees. 

When you offer full time employees unlimited PTO plans, you are telling them that you trust in their ability to maintain a strong work-life balance, complete projects, manage responsibilities, and also take the time they need away from the office.

 

Which PTO Approach is Best? 

When discerning which PTO benefits policy works best, consider first the needs of the team. While unlimited PTO might work quite well for one team, it may not work at all for another. There are certainly pros and cons to each. With lump sum it is easier for employees to plan their vacations throughout the year, however with accrual employees won't need to worry about rollover, as they will continually accrue days either monthly or quarterly. 

It is important to evaluate your industry and ultimately your team to discern which path forward will be best. Utilizing an HRIS system is a great way to ease the process of administering PTO. It offers employees easy access to their PTO plan. They may request time off or simply view their available PTO days. Employers are able to approve and deny requests as well. 

HR should always be looking to adapt when necessary. Consider reviewing and auditing your PTO policies regularly. Should you choose to make any changes, use this template as a guide

BernieU Course: Paid Time Off Tutorial: How to Build and Audit a Great PTO Policy

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