Running any type of business means you likely have employees. In addition to regular days off, people will often choose a specific employer if that company offers paid time off, or PTO.
But what is PTO, exactly? And how does it work? Here are some PTO basics all employers need to know.
What’s PTO?
Paid time off, often shortened to PTO, are days off given to employees on which they perform no work-related duties but still receive their average daily hours in wages. You can structure PTO policies in several ways depending on your company’s size and structure.
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PTO normally offers employees a set number of days that they can use per period (usually annually). In some companies, different types of PTO days exist, such as:
The PTO policy you choose depends on what you can offer as an employer. If you choose to offer holiday pay, for instance, you might choose to honor only specific holidays. Usually, a PTO policy at least includes nationally recognized holidays, family leave, and sick leave.
Today’s talent looks for employers that show an honest desire to take care of employees. That means you’re competing with others in your space for the top talent. One of the ways you can remain competitive is by offering PTO. It makes you more attractive to not only new recruits but your current employees, too. In fact, employees with access to PTO don’t get burned out, have increased productivity, and better overall morale.
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The majority of companies do not have to offer PTO in the United States–but there are a couple of exceptions. For instance, if your company contracts with the government and that works falls under either the SCA or DBRA acts, PTO and other policies are dictated by prevailing local standards. Regardless of industry, if you decide to offer PTO, you must comply with the standards set forth by the United States Equal Employment Opportunity Commission (EEOC).
According to a study done by World at Work, 37% of employees that have annually accruing PTO fail to use it up by the end of the year. That figure changes drastically if the employer stipulates that each year’s PTO allotment must be used within the calendar year – it drops to just 19% of employees with PTO left over.
That said, what is an employer to do when an employee resigns and still has PTO left? Are you responsible to pay for this?
The short answer is no. There is no federal law mandating employers to pay out any unused leave. However, there are some exceptions:
Reviewing your PTO policy is necessary from time to time, as compliance rules can change. You may need to conduct an audit to accommodate your workforce, or, as we saw in 2020, reviewing your paid time off policy could save your company from getting ruined financially.
For instance, what if your entire staff saved up their PTO balance and used it all in the same month? You’d lose an entire month’s worth of work.
If your company is accustomed to paying monetarily for unused PTO and the same scenario plays out, that could equate to a small fortune.
Conducting periodic reviews can help you avoid potential risks like these. Keep in mind:
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