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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How Does It Work?
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:
- Personal. PTO that an employee can use for any reason.
- Vacation time. PTO that an employee typically accrues after so many weeks, months, or years on the job.
- Family leave. This leave allows an employee to take time off so they can help out family members. This type of leave is normally used for medical reasons such as an illness, pregnancy, or recent birth.
- Sick days. PTO allows staff to take days off to recover from an illness without losing pay. This type of PTO is a win/win for all involved, as it allows the employee to recover and keeps sick people from attending the workplace.
- Holidays. Specific days of the year that your whole company observes. Employees don’t request time off at these times because it’s already understood they will not have to work.
- Bereavement. PTO offered when a death occurs in the immediate family of an employee.
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.
PTO for Employers: Why Offer PTO?
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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Do You Have to Offer Paid Time Off?
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).
What If an Employee Resigns and Has Outstanding Accrued PTO?
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:
- If you make the promise to, such as in the employee contract or onboarding manual
- If your company operates within a state that regulates PTO payouts.
Should You Review Your PTO Policy?
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:
- Your company’s fiscal health
- The benefits you offer staff
- Federal and state PTO regulations
With the right plan, you can have a better organization.
How America’s Back Office Can Help
We handle all aspects of Human Resources (HR) so you can lower your labor costs and increase your profitability.
America’s Back Office, one of just a handful of Certified Professional Employer Organizations (CPEOs) is prepared to take the HR burden off your plate.
Our features include:
- Customized Employee Handbook
- Workers’ Compensation Policy and Claims Administration
- Health Benefits Policy and Claims Administration
- 401k Audits and Administration
- Employees & Employer Level HR Support
When it comes to compliance, America’s Back Office does it better, ultimately increasing your overall efficiency as a business.
To find out more, visit America’s Back Office or contact us for help today.
