How to Effectively Manage Employee Paid Time Off

Vacation programs are among the most basic benefits offered by employers: 98% of employers offer some kind of paid vacation policy.

But finding the right vacation policy — one that will help you retain and attract talent, and contribute to a positive work-life balance for your employees — can be tricky. Wondering how you can effectively manage employee paid time off? Read on!

1. How Employees Use Vacation Time

Employees treasure vacation time: One study found that employees value paid time off more than any other benefit, even though fewer employees took time off in the past year, due to Covid-19. And even before the pandemic, many employees — particularly Millennials — do not take their full allotment.

The U.S. Vacation Deficit

Americans are particularly bad at taking vacation: A 2019 survey found that 55% of Americans did not use all their paid vacation time, and 54% said they felt guilty when they did take time off.

Another study found that 768 Million U.S. vacation days went unused in 2018. Of those days, 236 million days could not be rolled over, paid out, or banked for any other benefit.

And on top of workers taking less vacation, one study found that the average working day increased by 1 hour in 2020, in part, because of the pandemic. When employees work from home, it can become difficult to turn off for the evening. So employees are working more, and relaxing less.

The Problem With Unused Vacation Time

Unused vacation days compound stress, taking a toll on workers’ well-being and the well-being of their families. In addition, unused vacation time can reduce productivity and innovation at work.

A Culture of Vacation Deprivation

Work martyrdom, and the always-on and always-reachable work culture, may be contributing to America’s vacation deficit. Employees who have become accustomed to reading and answering work emails during off-hours may feel it’s impossible to unplug for multiple weekdays at a time. This work martyr syndrome can lead to a culture of vacation shaming, and contribute to workers’ perceived inability to fully unplug from work, even while on vacation.

• 54% of workers have felt guilty for taking their well-deserved vacation.
• 19% of employees have felt some sort of pressure from managers not to take time off.
• 48% of workers say they’ve checked in on work while on vacation.

Creating a vacation-friendly culture is important for employees’ well-being, since multiple studies have linked the practice of taking vacations to an increase in overall good health. Healthy employees are more likely to be productive and happy employees. Even if your staff can’t travel due to the pandemic, they should still be encouraged to take time off and recharge.

Read on to learn about paid-leave offerings, vacation policy considerations, and how to create a PTO-friendly culture to ensure your employees don’t suffer from stress-related burnout or vacation shaming.

2. Paid Leave Plan Offerings

There are two main ways to structure your company’s leave system: A traditional system or PTO bank. Traditional systems allocate time into categories (vacation time, sick time, and personal days), while a bank of PTO provides employees with a pool of paid days to use at their discretion. Many workplaces are shifting away from a traditional leave system in favour of a PTO bank. Most employees prefer to have a bank of days, because it allows them to use their days off, as they see fit, instead of being restricted by rigid categories.

The third, and far less common structure, is an unlimited time off policy, with 6% of organizations offering this type of PTO system. Read more about this under point 4, below.

Paid time off plans vary widely by country. The U.S. has no statutory requirement that employers must offer paid vacation or sick leave. In the EU, the paid holiday entitlement is set at a minimum of four weeks per year, exclusive of bank holidays, and sick leave varies by country.

3. Managing Your PTO Program

When forming or reconsidering your paid leave program, be sure to consider legal regulations, as well as industry norms.

Define Your Policy

A written vacation policy, that is well-managed, is essential for supporting employees in taking their vacations. Use this checklist to make sure you have all your bases covered:

PROGRAM CONSIDERATIONS

• Will vacation and sick days be allotted in separate buckets, or as a PTO bank? (Traditional vs bank of days)
• Will both full- and part-time employees receive paid vacation and holidays?
• Will PTO be earned per pay period? If so, will they be earned monthly, quarterly, or annually?
• How far in advance do employees need to request vacation time?
• How will unexpected events such as emergencies, bereavement, and jury duty, be considered?
• How will employees be compensated during weather closures or natural disasters?
• How will paid holidays be considered for those employees who are required to work on holidays?
• Will yearly PTO allotments increase with tenure? At what intervals?
• Will unused PTO roll over from one year to the next?
• Will there be a cap on PTO rollover? At what point will it expire?
• Will employees be able to add unused vacation funds to 401(k), HCSA, or receive payment for it?
• Will employees receive a paid sabbatical after a specific amount of tenure?

ADMINISTRATIVE CONSIDERATIONS

• Who will be responsible for the management of PTO?
• What system will house employee PTO data?
• How will employees learn about the vacation policy?
• Where will they be able to reference the written policy?
• How will employees request time off?
• How will employees or managers log time off?
• How will employees find out how much time they have accrued?
• How will pay for unused vacation time be distributed upon an employee departure?

4. Pros and Cons of Unlimited PTO

The recent trend of unlimited PTO can be seen as a competitive advantage. However, the practice has only been adopted by 6% of workplaces. Some companies have even tried it, and returned to a defined PTO system.

Pros

• Administrative efficiency. Not having to keep track of PTO eliminates one more employee metric that must be entered into a system and tracked.
• Cost savings. Accrued vacation time can be a liability on a company’s balance sheet. In addition, unused time may need to be paid out upon an employee’s departure.
• Employee flexibility. Many employees enjoy having scheduling flexibility and not having to define whether they are taking a sick day or a vacation day when needed.
• Morale boost. Employees can be excited about the benefit and feel empowered with the level of trust afforded to them to use free time at their own discretion.

Cons

• No clear expectations. Unlimited PTO can backfire when employees don’t know how much time to take. They may not end up taking many vacations at all, adding to their stress, and causing burnout.
• Overlapping vacations. There’s a risk that too many employees may take a vacation at the same time (such as during school vacations). This can put an undue burden on the remaining employees, or impact project timelines and/or customer accounts. However, having a policy in place to avoid overlapping vacations could mitigate this risk.
• Lack of manager/leader modeling. Employees often look to their managers and company leaders for models of how much vacation to take. For example, if a team’s manager doesn’t take regular vacations, their team may not feel entitled to do so themselves, compared to a team who’s manager regularly takes time off.
• Resentment over lost accrued vacation time (funds). Switching from a PTO bank system to unlimited PTO may cause resentment if existing accrued time is not paid out.

Unlimited PTO is not right for every workplace. If trust and transparency are already strong traits of your company’s culture, and a plan is put in place to set expectations with managerial support, unlimited PTO may be a good option for your company.

5. How to Create a PTO-Friendly Culture

Even the most generous vacation packages are meaningless if the culture does not support taking time off. A culture that supports PTO starts with strong managerial support.

Vacation Transparency

Because managers may be overburdened themselves, vacation should be a topic that is discussed openly in 1-1 meetings and performance reviews. Consider these tips for supporting vacation discussions:

• Encourage company leaders to mention their own vacations, and publicly encourage others to take theirs as well.
• Position managers’ vacations as growth opportunities for staff.
• When planning performance goals and projects, build in vacation time considerations. For example, simply asking, “Who is going to be on vacation this quarter?” can help set expectations for a project team.
• Provide formal and written guidelines for the notification time required before vacations, particularly for longer absences (for example, 5 days notice for every 1 day of vacation requested. So if an employee wants to take 5 business days off in a row, they need to give 25 days notice).
• Help employees plan for vacation coverage, and encourage them to support colleagues during their vacations (one idea is to set up a “buddy system”, and pair up employees who can cover for each other).
• Set clear expectations around answering emails and phone calls on vacation. Encourage employees to set out-of-office replies, or use an app such as Thrive Away, which helps you manage notifications before you leave on vacation.
• Plan for re-entry. Returning to hundreds of emails and a burgeoning task list is no fun. Anticipate the time your employees will need to catch up, and schedule projects accordingly.

Reward smart work, not overwork

Only rewarding or praising staff who don’t take vacations can lead those who value a work-life balance and family time to feel ashamed when they request vacation time. Working hard doesn’t have to mean working long hours.

Publicly rewarding smart work, not overwork, creates a culture that includes the contributions of both those who are available to work extra hours, as well as those who aren’t.

6. Recruiting and PTO

Candidates care about vacation: after healthcare and flexible hours, paid vacation was the third most significant benefit to employees in one study. This is why it’s crucial to incorporate discussions about your PTO plan into your employer brand communications so that candidates can make an informed decision. Many employers include a benefits summary that includes PTO information in job descriptions, as well as on the company website.

In addition, you can use Glassdoor in the following ways:

1. Add a Vacation & PTO Benefits Summary to your Glassdoor Profile — unlock your free employer account.
2. Check Glassdoor vacation benefits ratings and reviews for feedback on your current plan.
3. Use Glassdoor for competitive research on vacation plans. Find out what types of plans your competitors are offering, and how employees rate them.

Conclusion

Whether you’re dreaming of the beach, the mountains, planning a staycation due to travel restrictions, or just spending extra time with the family, remember that your employees are too. Creating a competitive and transparent vacation policy, and encouraging your employees to use their PTO, will help reduce burnout, encourage productivity, and generally keep your workforce happy.

In addition, you can use Glassdoor to inform your vacation policy decisions and communicate your PTO plan to candidates interested in working for you.