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Paid time off (PTO)

Paid time off (PTO) is one of the most important building blocks of an employee benefits package. While the definition of paid time off varies depending on the employer and the industry, the term generally refers to paid leave benefits given to employees. PTO plans frequently cover compensation for vacation time, personal time off, sick leave, parental leave, federal holidays, and special circumstances such as jury duty. While many organizations still place sick days in a different category than vacation and personal days off (and, in fact, some states legally require employers to do so), grouping sick and personal time together as PTO hours is increasingly common.

Is paid time off required by law?

It is a common misconception that all employers are federally required to offer paid sick leave. In fact, only 17 states currently have legislation in place requiring that employers offer PTO for sick days, although many cities and counties have their own sick leave related labor laws. Several states have passed laws requiring some employers to offer a certain number of PTO hours per year, ranging from 24 to 40 hours annually. Some states also require employers to provide detailed explanations of state and local policies regarding vacation, sick, and personal days, including how much accrued PTO employees gain per number of days or hours worked. There are also important variations from state to state. California, for example, allows employers to limit PTO time to 48 hours accrued. Once a worker hits that 48-hour threshold, they must use some of their hours before they are allowed to accrue any more time. Companies in California can also limit workers' usage of PTO to 40 hours each year, with any remaining time rolling over to the following work year. There may be some confusion involving paid time off and the Family and Medical Leave Act (FMLA). FMLA leave is intended to provide employees with a guaranteed amount of time away from work medical emergencies, lengthy illnesses, or major life events such as a birth or adoption. According to the US Department of Labor, PTO cannot be used as a replacement for or extension of FMLA leave. Essentially, if an employee’s reason for taking time off qualifies for FMLA, they cannot request or be offered PTO instead.

Why should your business offer paid time off?

In areas where paid time off is not legally required, it may seem sensible for employers to avoid the expense and simply not offer PTO. That is definitely a reasonable option for many organizations, especially mid-size and small businesses with limited budgets, but there are also some compelling reasons for those businesses to consider offering employees PTO even without a legal obligation.

Improved employee retention

In workforce-driven industries like manufacturing, healthcare, construction, agriculture, transport, and logistics, employee retention is a huge consideration. Those fields consistently see high rates of employee turnover, which can lead to reduced productivity, low worker morale, and ultimately less profitability every time another employee leaves their role. By allowing employees to accrue more PTO hours over their months or years of service, an employer can provide a very valuable incentive for workers to remain with a company for a longer time.

Simplified human resources processes

Human resources teams spend too many hours identifying time fraud, pursuing disciplinary action against violators, and cleaning up the problems left behind by fraudulent behavior. A business that gives its employees broader options for paid time off can avoid some of those hurdles simply because workers who receive PTO often have less incentive to be dishonest about their working hours. Essentially, employees working with the knowledge that their accrued time means more paid vacation in the future are less likely to look for ways to avoid work in the present. That can put more hours back on your HR team's calendars, allowing them to devote their attention to more pressing workplace needs.

More reliable employee recruitment

Just as paid time off can be a valuable tool for keeping workers with your company for a longer period of employment, it can also be a fantastic method of attracting high quality new hires. Studies show that millennials and younger employees place a higher value on maintaining a strong work-life balance than any generation before has, to the extent that many workers will choose a job with a strong benefits package over one that offers a higher rate of pay. By making a generous PTO option as part of your employee benefits plan, your business can make itself that much more attractive to a new generation of potential employees. That is a vital consideration in blue collar industries that are seeing a massive swell in retirements for older workers.

What are some different kinds of PTO?

Beyond offering basic paid time off perks, many organizations offer some form of enhanced PTO as an extra incentive. Some employers up the ante by allowing workers to build up PTO banks, where their unused PTO hours roll over from year to year. That allows long-term employees to take extended vacations and leaves of absence beyond the standard two-week allotments. Some employers raise the stakes even higher by offering unlimited PTO, allowing employees to take as much time off as they wish so long as it does not interfere with the quality of their work. (Even in these cases, of course, employers still set requirements on submitting PTO requests and reporting to work for a certain number of hours.)

How can your business manage paid time off?

Considering the complexity of PTO regulations and the challenge of managing schedules in industries with 24-7 staffing needs and nontraditional shifts, many organizations opt for automated time-tracking software to assist in tracking employees' PTO. By incorporating paid time off into your everyday workforce management and scheduling functions, your HR team can remove a great deal of hassle and avoid time-consuming and potentially confusing tasks. Whether or not your organization offers paid time off, automating your leave management and scheduling functions is an essential aspect of managing a complex workforce for employers in labor-driven industries.

Ascentis' powerful payroll software can help you with all of your PTO management needs.

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