Employee Leave: Setting Your PTO Policy
*This blog is adapted from the HR Party of One episode, Employee Leave: Setting Your PTO Policy which you can view below.
Paid time off is a topic that can be tricky to manage. How do you create a PTO policy that’s fair? What are your legal obligations? How do you keep employees satisfied while still maintaining a productive and operating business?
It’s tough! And to cover all of these questions, we’ll have to first think about how we wound up with the concept of “paid time off” in the first place. Why are we paying employees for time out of the office?
PTO evolved pretty substantially over about a hundred year period. In the mid-1800s, there wasn’t even a standardized workweek, so the idea of PTO would have been completely laughable.
The History of PTO
Many cultures around the world recognize a holy day without work, but the concept of a workweek or a weekend has been around for a lot less than you might think.
In fact, did you know that Henry Ford is sometimes credited as inventing the weekend? And this story may be apocryphal, but side note: some say he did this so Americans might be more likely to buy cars for weekend road trips. While the weekend as we know it has origins farther back in industrial Britain, the Ford Motor Company was one of the first companies in the U.S. to institute a 5-day workweek in 1914.
Going back even farther, U.S. labor groups started pushing for an official “workweek” as early as 1866, to employers’ disdain, instituting a period of push-and-pull between employer groups and labor groups that has arguably continued up to today.
Throughout the coming decades, there were countless demonstrations and policy pushes to shorten what were then often 12+ hour workdays. You may have heard of one such demonstration known as the Haymarket Affair in 1886, in which a bombing killed 7 police officers, at least four civilians and wounded dozens of others.
Throughout the early 20th century, other industries came to adopt a standardized working week including railroad workers, manufacturers, printing companies, and others.
Finally, in 1938, Congress passed the Fair Labor Standards Act, which created the first minimum wage of 25 cents per hour, and a 44-hour workweek, which was revised two years later to a 40 hour workweek.
So that’s how we wound up paying employees for 40 hours worked, plus overtime, if necessary. But how did we get from there to paying for time not worked at all?
Look to Europe
Other countries pushed labor regulations beyond the U.S. standards, mandating paid vacation and other benefits - UK, France, Germany, Spain get the most paid leave worldwide - but the U.S. has let the market and employer discretion set the standard when it comes to paid leave. There has always been a recruitment and retention element to vacation – with employees generally considered more productive and satisfied with some time off.
But at the same time, this little history lesson shows that there has always been tension when it comes to this topic.
And in the decades that followed, employee leave has become increasingly complex, and has evolved beyond the classic “two weeks paid vacation” into multiple categories of time off and ways to structure, track and maintain PTO policies.
You can imagine how this might have happened – employees didn’t want to take their vacation time for sick days, or the loss of a loved one, and you can imagine that some enterprising HR manager said, okay, enough is enough, let’s just call it “paid time off” and you can take it as you like.
So what kind of PTO policy is right for you?
You, as in HR or the business owners, have a lot of flexibility when it comes to creating those policies. That’s because there are no federal requirements around paid leave. In fact, the only federal requirement around any kind of leave is the Family and Medical Leave Act of 1993 - and it applies just to unpaid leave, and only for certain employers.
We’ll quickly jump into your FMLA obligations in a minute, but to put a fine point on it – that’s right, despite cultural standards and what might be considered some best practices, you’re actually not required to provide your employees with any leave at all.
And some employers take that to heart! I know a business owner who responds to PTO requests with,
“Oh, so you want to get paid for not working?”
On the other end of this spectrum is unlimited PTO policies, which are slowly becoming more common. And then in the middle, there are a huge number of ways to structure categories like sick leave, vacation leave, bereavement, and so on.
So here are some of the things that are bound to come up and the considerations you may have to make when it comes to employee leave.
The Family and Medical Leave Act applies to companies with 50 or more employees, as well as all public agencies. Employees who have worked for their employer for at least 12 months or 1,250 hours over the last year are eligible for FMLA, and are guaranteed 12 weeks of unpaid leave per year for the birth or adoption of a child, a serious medical condition or to care for a family member with a serious health condition.
Beyond that, the rest is really at your discretion. Many employers and employees alike mistakenly believe they are ensured paid time off for things like voting, jury duty, parental leave or even holidays, but that isn’t true. There are no paid time off regulations in the U.S.
But you likely provide some regardless. It would probably be pretty hard to hire and keep workers without a PTO policy. A recent survey of small and mid-sized companies showed that twenty percent of current employees were holding 20 days or more of PTO. So what should you consider when building or auditing your PTO approach?
Salary vs. Hourly
You’ll want to think first about whether you’re talking about creating PTO policies for salary or hourly employees. These are two entirely different PTO situations, and it’s more or less impossible to have hourly employees on unlimited PTO, and this is due to the dynamics of overtime pay required for hourly employees.
Salary employees on the other hand, have no access to overtime pay regardless of how much they work, and there is a tradeoff there from a wage and PTO perspective.
So should you provide categories of PTO, like sick leave or vacation leave, or an umbrella PTO category? What about special circumstances like jury duty, bereavement or other situations?
In general, you want your policies to be as simple as possible, and as standardized as possible among different teams and managers. It may not always be possible or make sense to have one singular PTO policy across your organization, but it also will likely be administratively complicated to have too many.
Make Managing PTO Simple
One way to streamline your operation is to use an HR software solution like BerniePortal. It gives you advanced features like customizable PTO policies, automatic accrual calculation, PTO calendars, and can be accessed anytime and anywhere with employee self-service. See how BerniePortal can help your organization. According to our recent PTO survey report, 28% of respondents not using a PTO system said that they planned to adopt one in 2020.
One thing HR may be familiar with is how difficult it can be to draw the line when it comes to individual requests. You might allow a day of PTO for bereavement for immediate family, and then find you have employees who don’t have those kinds of family ties and who want to take it for the loss of a close friend or unrelated parental figure. Or even the death of a pet. How do you address these responses fairly?
The Three Considerations to Make
- First, consider the individual and the situation. What’s fair to them?
- Next, consider HR’s ability to actually administer the time requested - is it possible?
- What’s fair to HR? Finally, consider what’s fair or just to your organization.
And if you feel uncomfortable saying no to an individual, remember you may be saying “yes” to a better and more fair policy. This is a concept popularized by Seven Habits for Highly Effective People author Stephen Covey - it can be uncomfortable to tell an employee no, but remember that in the right context and with the right intent, it’s really a deeper yes.
For example, I said no to an employee who requested PTO for the day before Thanksgiving. This employee was an hourly worker who asked for PTO the week before the holiday because she found out her boyfriend was returning a day early from several months abroad.
She loved him. I get it. Love is powerful.
But she also worked in a part of our business that was busiest in November and December. And for any Q4 PTO requests we required people on her team to request PTO at least a month in advance. It was hard to say no to her. Who says no to love? But I had a deeper yes because we’d thought through what’s fair for the business.
Is Your PTO Policy Competitive?
However, if you’re receiving a lot of one-off PTO requests for special approval outside of your policy, that might be a sign that your policy isn’t competitive or in the best interest of your organization or employees.
Remember that PTO is a component of a total compensation package, alongside wages and benefits, and so PTO audits should be a regular component of HR’s recruitment and retention efforts.
When conducting a PTO audit, HR professionals should both evaluate market standards as well as internal adherence to the policy. If a significant number of managers are providing more PTO than the policy allows, this could be a signal that the overall policy needs to be upgraded and standardized.
Making the Change
If you determine it is time for an upgrade, how do you change a PTO policy?
Ultimately, it can be a big shift, but you just have to do it. You have to get corporate buy-in, and just communicate that to employees that beginning January 1, PTO will operate differently. For more on building a great PTO policy, we’ve published a report called First-Class PTO that addresses how small and mid-sized businesses across the country structure and manage PTO. You can access that by clicking the link in the description.
How We Do It
At our organization, our position has been that it’s easier to institute an umbrella PTO policy than to manage multiple categories of days. When an employee asks for bereavement leave, I say absolutely. It looks like you have 5 days of PTO.
It’s allowed our team to take the time they need without a lot of administrative hassle on the HR or manager side. This is a trend in PTO policies that is expected to grow in the coming years.
For our company, while our non-exempt roles do have a PTO policy, our exempt employees do not “technically” get a set number of vacation or PTO days. If a Team Member needs time off, they arrange it with their superior or what we call an Accountability Partner. For that we usually require at least two weeks notice. Overall, we believe that as long as the employee is getting their work done in the spirit of our overall principle of "mutual respect,” we can avoid the hassle of tracking days.
Of course special considerations have to be made during our busiest time of year, and occasionally PTO requests are denied. But overall our employees like this policy as it puts the control and responsibility in their hands, and it turns out treating responsible adults like ...well responsible adults goes over really well.
So let’s recap. Since the mid-1800s labor regulation and PTO has evolved substantially. The 40 hour workweek was born in the U.S. two years after congress passed the Fair Labor Standards Act in 1938. As the century moved on “two weeks paid vacation” became the standard in the U.S., while other countries pushed labor regulations even further.
In 1993, Congress passed the Family Medical Leave Act, which applies to companies with 50 or more employees, as well as all public agencies. It guarantees employees who have worked at least 12 months or 1,250 hours, receive 12 weeks of unpaid leave per year for things like childbirth, serious medical conditions, and caring for family members.
However FMLA only applies to unpaid leave and there are no federal requirements for paid leave. This means the employer can set up their PTO policy anyway they like, but it is considered a part of the employee's overall compensation package so it needs to be competitive with the market standards. It also needs to be effective and ideally as simple as possible.When it comes to addressing individual employee requests for time off, consider these three things.
- The individual and the situation.
- HR’s ability to grant the time off.
- Is it fair to the organization?
It can be unpleasant having to deny PTO request but it may be what’s best for the organization.
However, if the employer is getting a ton of PTO requests outside the scope of the PTO policy, it may be time to revisit the policy to make sure it’s still the best option for the company and the employees. If it’s not, change it.
Here are a few steps you can take to improve your PTO policy.
- Get out of the woods and compare. Take a birds-eye view at your PTO offerings and compare them with what other companies in your field offer. A good way to find this info is by simply checking out their job postings or career pages. Check out our PTO Survey Report which should shed some light on how small and mid-sized businesses across the country structure and manage PTO.
- Optimize it! Make sure your PTO approval and tracking process is streamlined. The best way to do this is with an advanced and easy to use HR software solution like BerniePortal.
- Get educated. To take it one step further, go to BernieU and check out our free course on the “Foundations of Employee Retention.” It’s been HRCI approved for recertification credit hours.
What was a great PTO policy ten or even as few as five years ago may not be the best option for the present and the future. So take some time to review your policy and make sure it works effectively for both the company and the employees. Also let us know in the comments if you have a unique PTO policy you’ve found to work at your organization.
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