Had a conversation recently about the state of vacation and paid time off practices and how -- despite the press about some revolutionary steps being taken at a few companies -- it seems nothing much has changed recently.
New research from WorldatWork, however, reveals one interesting development. It seems that the pendulum that has been swinging practice from the traditional buckets of vacation/sick/personal time off to the newer combo-pack of consolidated leave called PTO has stalled, with traditional systems looking to maintain their dominance of the landscape. See image below.
The movement to PTO was driven by a lot of objectives, including:
- Providing employees with some flexibility and discretion in their usage of paid time off.
- Keeping benefits offerings competitive, as PTO programs grew in popularity.
- Reducing unscheduled absences by requiring that PTO days be scheduled and approved in advance except for illness and emergencies.
- Saving money. The WorldatWork research confirms that PTO systems typically allot fewer days than traditional ones. For example, surveyed employers, on average, offer employees with 1-2 years of service a total 18 days under PTO systems and 23 days under traditional systems. (The idea, I presume, is that PTO plans give the employees more usable and therefore more valuable days.)
So what's happening to dampen the enthusiasm for moving to a PTO system? Some possible explanations include:
- The transition cost, in terms of both dollars and morale. PTO plan implementation may involve paying out some level of existing vacation and sick day accruals, presenting serious financial implications for some firms. Additionally and depending on employees' sick time usage, the fewer available days under a PTO plan (as noted above) might create the perception that the change is a net takeaway.
- The oft-cited concern that many employees view and treat PTO as vacation time, leading them to come to work sick in order to preserve it, thereby exposing their co-workers to illness.
Additionally, there is a lot of experimentation going on in the paid time off space these days. Companies like Netflix and Virgin America have gotten a lot of press for their unlimited vacation policies. The idea here, of course, is that by treating employees like responsible adults, you'll get responsible adult behavior ... and appreciation to boot!
Does it work out that way?
Writing recently at HRZone, Craig Bryant (founder of software company KinHR) makes the argument that unlimited vacation policies are just hype. One of his key arguments, beyond the better known one that these policies often result in employees taking less time off - not more, is that unlimited leave can create a big blind spot for employers. He notes:
- Paid time off is an expense and, like any other business expense, it can be wasted and misused if left untended.
- Companies that aren't tracking time off may be missing the chance to make informed decisions about when its best for team members to be away from work, which is poor resource planning.
- If companies don't care whether employees get out of the office, what other aspects of work life are they not paying attention to?
All this is to say -- I think -- that there may not be one right approach to paid time off and that it might be wise for employers, as part of improving their overall talent management game, to do the due diligence necessary to match practice up well to business needs as well as worker needs, demographics and preferences.
In this day of data and analytics, shouldn't any review of time off benefits include a review of usage patterns? Even -- perhaps particularly -- organizations with unlimited leave would benefit from knowing which employee groups/categories are using the most or least of their paid time off allotment. For example, do high performers take as much of their allotment as average or low performers? Does the organization make it too difficult for these valuable employees to take time away from their jobs? Or are their different usage patterns by function or organizational unit breakouts? Might there be a subculture or a particular leader that discourages taking time off?
Vacation and PTO might be an area ripe for more data-driven discovery, learning and practice improvement!
Ann Bares is the Founder and Editor of the Compensation Café, Author of Compensation Force, Managing Partner of Altura Consulting Group LLC, and a proud co-author (along with Cafe cohorts Margaret and Dan) of the newly published book Everything You Do in Compensation is Communication. Ann serves as President of the Twin Cities Compensation Network (the most awesome local reward network on the planet) and is a member of the Advisory Board of the Compensation & Benefits Review. She earned her M.B.A. at Northwestern University’s Kellogg School, is a foodie and bookhound in her spare time. Follow her on Twitter at @annbares.
Creative Commons image "Vacation Texel 2012" by Boudewijn Berends
Potential negatives of a PTO plan:
Some employees will miss more work under a PTO plan, since all of the time can be used as vacation and since under a traditional plan they had less vacation available to them. If these are your better employees, this may not be desirable.
Making matters worse, some less productive employees, who would have abused illness/personal business allotments under a traditional plan, will be at work more under a PTO plan to conserve vacation time.
Posted by: Herb | 10/31/2014 at 11:48 AM
Thanks Herb for the additional pointers on PTO plan downsides. Perhaps the bloom is off the PTO rose to some extent - or it may be we are realizing that PTO approaches (like most human resource programs) are best tailored to the worker demographics and business needs of our organizations ... and we are now considering and choosing accordingly.
Appreciate the comment!
Posted by: Ann Bares | 11/03/2014 at 08:19 AM
Employees use time off for so many reasons these days that calling one day off a "vacation" day vs a "personal" or "sick" day may cause employees to stretch the truth if they are out of sick days or really need time off to paint the house. Is that a true "vacation" anyway?
When a business relies on its employees to be at work, I agree the tracking needed really is scheduled vs unscheduled time off. It's the unscheduled time that creates issues.
Generic paid time off (PTO) requires employees to be adults and plan for their time off but allows them to be honest when time is needed unexpectedly. And rather than an unlimited-no tracking method where you have a general idea of who is taking time, you have a realistic picture of the time off needed.
If enough time is provided to accrue in the PTO bank, employees won't have to conserve their time off and come to work sick. On the other hand, you don't need to accrue unlimited balances and you may not have to pay out all accrued PTO time pursuant to a bona-fide policy to limit payouts if an employee leaves (check your state law).
Therefore you can control the liability to an extent while allowing employees to be in control of the time off they need for whatever purpose.
One plan doesn't fit all so employers do need to evaluate what is best for their organization based on their current plans, current employee behavior and desired behavior. And regardless of current time off benefits, working with Finance to plan the upfront costs and having employees engage in the conversion planning is key to a smooth transition.
Posted by: Karen Kervick | 11/03/2014 at 08:44 AM
Thanks, Karen. Great observations and points - appreciate your sharing them here!
Posted by: Ann Bares | 11/03/2014 at 10:14 AM
Karen comments suggest two interesting points.
Employees who would lie under the traditional plans to fake illness or a personal business need to take more vacation would do well in a PTO plan. HR must do everything in its power to accommodate dishonest employees.
Also, in a PTO plan, absences are not coded by type of absence, so developing metrics on absence management is very difficult.
Posted by: Herb | 11/03/2014 at 10:22 AM
Nice to read so many very well stated pros and cons. It does rather illustrate why "best practice" is rarely one single method. Simple answers don't suit an unruly reality that refuses to conform to a common universal pattern. Rational responses to reward issues require situational analysis and careful judgment about appropriate options.
Posted by: E. James (Jim) Brennan | 11/03/2014 at 02:27 PM
I agree one plan does not work for all. However, I disagree that a PTO is somehow rewarding or accommodating dishonest employees. PTO just clarifies the time off available and doesn't force a choice between which bucket of time to use.
Employees are often caught in a bind with an unexpected absence - think of the parent with a sick child who has no personal time to use- is it a sick day for them or does the company allow usage of sick time to care for a sick child? That is a gray area in some companies. PTO does not require us to define what is and isn't an acceptable reason for an absence. Or for what an employee may use time off.
The reality is that life is not put into buckets of vacation, sick and personal time for us. Empower the employees to plan their time off with PTO.
Howver you also would pply the same time off policies to PTO regarding usage. You can and should code the time off as scheduled PTO or unscheduled PTO to track usage. Follow disciplinary procecures for too many occurrences of unscheduled absences. It's actually easier to track.
The only difference with a PTO plan is that HR has only one bucket of time to accrue and maintain. Employees have one balance. Imagine that, something in an HR benefit that is actually made simpler. I can't argue with that.
Posted by: Karen Kervick | 11/04/2014 at 08:39 AM
Exactly. What is the problem with treating employees as adults? You get "x" days per year to use in whatever way you see fit. And if you come to work sick, we'll send you home.
Posted by: Tony Bergmann-Porter | 11/04/2014 at 06:13 PM
By your own statements, we can't treat employees as adults, if we have to send them home when they report sick. Sounds like elementary school to me.
Posted by: Herb | 11/05/2014 at 04:07 PM