How to Pick a PTO Policy that Works for Your People and Your Organization

​How to Pick a PTO Policy that Works for Your People and Your Organization was originally published on Forbes.com

Everyone loves to take paid time off, but many employers struggle with the optimal way to provide it. Decades ago, PTO policies were relatively simple, but they’ve grown in complexity over the years as work-life balance has become a more prominent and widely accepted concept.
Most recently, during the Covid-19 pandemic, PTO has found itself in an even stronger spotlight as employees working remotely have been hesitant to take time off because, well, they’re already home. And many have felt a need to work harder as they’ve seen so many coworkers laid off or furloughed.

The truth is, picking the right PTO policy for your organization is very important. Although salary and benefits remain the twin pillars of competitive hiring, supporting perks such as flexible scheduling and time off remain critical components as well. Plus, as the pandemic has made abundantly clear, current employees need to regularly take days off to care for their own mental health and overall well-being.

Four Varieties

Generally, there are four broad types of PTO in use by most employers today:

1. Traditional. This is the PTO model that so many people encounter when entering the workforce. It gives you separate PTO allotments for vacation, sick and personal time. Typically, those allotments will increase as an employee gains service time.
2. Earned. Some employers don’t offer any PTO until an employee reaches a certain number of hours or days worked. Others provide only a bare minimum in case of an emergency. In any case, the idea is to incentivize new hires to stick with the organization — though earned PTO can be a tough sell for a job candidate who’s accustomed to having plenty of time off available.
3. Flexible. In recent years, this approach has gained popularity. It provides employees with a “bank” of PTO days from which they’re free to draw on as necessary. A flexible PTO model doesn’t distinguish between vacation and sick time. In a sense, it’s all personal time. One distinct advantage of this approach for employers (and employees, for that matter) is it’s easy to track.
4. Unlimited. This is the latest PTO “craze,” so to speak. True to its name, an unlimited PTO policy allows employees to take off as much time as they want or need without a manager’s approval. Obviously, employers will need to have faith in their employees to use unlimited PTO in a reasonable and responsible matter. (I’ll discuss this approach in greater depth below.)

Recent Developments
Overall, employers’ collective approach to PTO appears to be evolving toward flexibility. Although many organizations still stick to the tried-and-true traditional approach, the flexible model is gaining ground.
In May 2020, HR solutions provider XpertHR published the results of a survey (registration required) of employers in the United States. Out of the 457 responding organizations, 44% used the flexible model for PTO, while 48% relied on the traditional model. So, at least in light of this study, employers may be heading toward a 50-50 split when it comes to traditional vs. flexible PTO. And it would be unsurprising if flexible started to win out in years ahead.

Focus On Unlimited
The other 2% of respondents in the XpertHR survey reported using “other” types of PTO plans, including the earned and unlimited models. The latter approach, as mentioned, is considered a growing trend. Unlimited PTO speaks to the new world of remote workers controlling their own schedules and integrating time away from work on a more regular basis rather than the “two weeks of summer vacation” that so many professionals would customarily take in decades past.
However, converting from the traditional, earned or flexible PTO models to unlimited isn’t a simple matter. For starters, many employers who consider doing so often realize that they have employees with substantial amounts of unused PTO. Workers may expect cash payouts for this time if it’s going to “disappear” under an unlimited PTO approach, but that may not be financially feasible for the organization.

To cope with this, many employers continue to track each employee’s PTO until it's used up then convert the worker to unlimited PTO. The good news is, once all employees are working under the unlimited PTO approach, the administrative burden of reporting and tracking PTO, as well as paying it out if a worker leaves the organization, completely disappears.

And the bad news? Some employers have found that employees take less time off under an unlimited PTO policy because there’s no “use it or lose it” incentive to expend their allotment of days off. Plus, many workers are worried about appearing to abuse the privilege of unlimited PTO. Other employees may be only too happy to max out their use of the policy, which can lead to employment conflicts.

Careful Consideration
One could argue that employers are well within their rights to take an “if it ain’t broke, don’t fix it” approach to PTO. If the model you’ve been following is working for your organization from a hiring and retention standpoint, as well as for employees from work-life balance and wellness perspectives, that’s great.
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However, like so many other aspects of working, the expectations of top job candidates and valued employees do change over time. If you believe an adjustment, if not a complete transformation, of your PTO policy may lead to long-term benefits for your organization, give that change the due diligence and careful consideration it deserves.