The importance of a well-crafted PTO policy: Trends and considerations
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While there are many critical components to employee benefits packages — such as healthcare and pay, which generally top the list — paid time off (PTO) is a critical part of your company’s total rewards. We often talk about remote, hybrid, and flexible work arrangements, which are attractive and gaining a lot of attention, but we aren’t talking as much about paid time off.
As a leader at your organization, consider the importance of designing a policy that will work best for your company and employees. Not only will your employees rest and recharge, but there is also an ROI in that paid time off. A well-crafted PTO policy can be a valuable tool for attracting and retaining top talent, improving employee morale, and boosting productivity.
Gen Z employees in the United States ranked PTO and leave as the fourth most important benefit when it comes to considering a new employer, according to WTW’s “2022 Global Benefits Attitudes Survey. It ranked behind pay and bonus, career advancement opportunities, and flexible work options, but was considered more important than job security and health benefits.
According to Julie Bingham, Vice President of Total Rewards Consulting at MJ Insurance,
“The volume of clients and organizations that have asked us to engage in a paid-time-off program analysis and redesign is unprecedented; we have had more outreach on this specific topic in the past four months than in the 10 years that preceded them.”
Here are some of the benefits of having a well-crafted PTO policy:
- Attracts and retains top talent. In today’s competitive job market, employees are looking for employers who offer generous PTO policies. A well-crafted PTO policy can be a major factor in an employee’s decision to accept a job offer.
- Improves employee morale. When employees feel like they are valued by their employer, they are more likely to be happy and engaged at work. A generous PTO policy is a way to show employees that their employer cares about their well-being.
- Boosts productivity. Employees who are well-rested and refreshed are more productive at work. Studies have shown that employees who take regular time off are more likely to be engaged and productive.
- Reduces stress and burnout. Taking time off can help employees reduce stress and prevent burnout. This can lead to improved health and well-being, which can also boost productivity.
- Increases employee satisfaction. A well-crafted PTO policy can help increase employees’ satisfaction with their job. This can lead to lower turnover rates and higher levels of employee engagement.
There are many ways to structure your policy, such as:
- A one-bucket policy, where your time off is used however you want to use it, whether it’s for vacation, personal days for doctor’s appointments or errands, or sick days. One of the benefits of this policy is that people may be less likely to “call in sick” to “use up” sick days. Be careful with this type of policy, because some states are creating legislation around a minimum number of designated sick days. If you are a multi-state company, this may affect your policy.
- Unlimited PTO, a policy that is gaining popularity. While this type of policy is well-intentioned and reduces tracking and administration, it can create situations where employees actually don’t feel that they can take time off. If their boss or peers are workhorses, they may feel the pressure to take less PTO. Conversely, employees may feel resentment if others seem to be taking advantage of the policy. If you create this type of plan, mandate that employees take at least 10 days off per year.
- Company Shutdowns, which have gained some traction. While this started many years ago as a cost-cutting measure in manufacturing companies, other companies are leveraging this as an attractive benefit. Typically, the shutdown would be during the winter holidays and often the 4th of July week in the US. Some benefits of shutting down are that no one on the team feels they have to work, because no one else is working, and it creates more continuity on a production line with less coverage for vacations needed. Be careful to supplement this with other flexible time off hours. Dictating exactly when employees can take time off is too restrictive and unattractive to employees.
- Experience-based PTO. According to the World at Work, a total rewards association, “In an effort to attract experienced talent, some businesses are offering ‘experience-based PTO’to new hires. Rather than starting new employees at a baseline PTO schedule that increases as they build tenure with that company, employers are offering more PTO from the start for incoming workers with significant experience in the field.” Understandably, candidates often use their previous PTO and years of experience to negotiate more time, so this allows for more transparency and fair implementation. It may not be for every company, but does acknowledge employees’ experience. See the article linked above for advice on implementing such a program, as the devil may be in the details.
When designing a PTO policy, there are a few things to keep in mind:
- Be clear and concise. The policy should be easy to understand and easy to find.
- Is your policy fair and equitable? Do you offer the same PTO to all employees or only give more time off to those who ask? Is it based on tenure or position?
- Consider your company culture. What are the values that are important to your company? How do you want employees to feel about their work-life balance?
- Talk to your employees. Get their input on what they would like to see in a PTO policy.
- Research what other companies are doing. See what other companies in your industry are offering in terms of PTO. You are competing against them for top talent.
- If you allow for a rollover of unused PTO, limit it to 5 days. You want your employees to use their time off and get that recharge.
- Be prepared to make changes. As your company grows and changes, you may need to make adjustments to your PTO policy.
Julie Bingham shared, “We believe that many organizations have shifted their focus from compensation to paid time off for a variety of reasons, including they don’t have the ability to increase compensation anymore, they now compete for talent in a variety of geographic markets, and employees have shifted their focus from pay to workplace flexibility and time away from the office.”
As many companies are recalling employees back to the office, PTO will become even more important in the talent war. As you review your policies and ability to attract top talent, review your PTO and see if it’s serving your business well. By taking the time to create a policy that is fair, flexible, and easy to understand, you can attract and retain top talent, improve employee morale, and boost productivity.