Converting To a Paid Time Off (PTO) System – Ask HR Bartender

by Sharlyn Lauby on January 31, 2013

As the working world around us changes, companies need to adapt accordingly. That means constantly evaluating policies and procedures to make sure they are still effective and attractive. That’s the case with today’s reader question:

Our company is considering switching their PTO policy to an open plan, where employees no longer accrue vacation time but rather take time off at their (and their manager’s) discretion. We would still have a sick time policy. What are your thoughts on an open plan? How will this affect someone on FMLA?

Time off is a huge issue for employees. Administering a time off policy is a huge issue for the company. The easier the policy – both in terms of how it works and how it’s tracked – creates a win for everyone.

time off, kronos, pay, paid, PTO, workforce, workforce institute, employees, productivity, Joyce MaroneyTo answer the reader’s specific questions, I reached out to Joyce Maroney, director of The Workforce Institute at Kronos. I met Joyce last year at KronosWorks, their annual users conference and I was honored to be asked to serve on their Workforce Institute Advisory Board. Kronos is a leader in the workforce management space, so they really know their stuff about this sort of thing!

The “open plan” approach described by this reader sounded to me like the concept of unlimited vacation. I recently saw an article in Fast Company about it. What do you see as the pros and cons of implementing an open plan for time off?

[Joyce] In traditional PTO and sick time plans, organizations are looking to define and limit their liability to pay employees for time not worked. This is especially important for the many employees whose jobs are hourly and require presence to perform – and therefore have to be replaced when they are absent. In fact, according to a 2010 survey Kronos conducted with Mercer, unplanned absences cost U.S. organizations 8.7% of their payroll each year.

With these open plans, employees don’t accrue a set amount of vacation leave nor do employers establish an upper limit for the leave.  Employees in these plans seem to appreciate the flexibility and the trust put in them that they’ll behave like adults and do the right thing for the business when planning time off.  Practically speaking, I think people in organizations using these plans are more likely to use the flexibility to slip out to a kid’s sporting event for a few hours than they are to take a month long trip to Tahiti.   Also on the pro side is the recruiting value of this benefit for prospective employees.

time off, kronos, pay, paid, PTO, workforce, workforce institute, productivity

On the con side for the employee (but a plus for the employer), if the employer isn’t accruing a paid vacation liability, they don’t owe it to the employee when the employee leaves.  There appear to be some legal disputes about this in states that mandate terminated employees should be paid accrued vacation time, so organizations contemplating this change should understand those implications in the states in which they operate.

I think another con would be the challenge of managing time off fairly across the organization in a setting where the approval is essentially left to the individual manager’s discretion. If people in similar jobs, but with different managers, have their requests treated differently, that’s going to create fairness issues.

I do find it interesting that this reader differentiates PTO and sick time. In your experience, why do companies keep the two separate?

[Joyce] Great question. For most employees in the U.S., vacation and sick time are not mandated by the government and are offered as competitive benefits vs. entitlements.  It’s the talent market that’s driving the offer of these benefits and companies can offer as much or as little PTO as the market demands.

One rationale for treating sick and vacation time differently is that vacation is seen as planned time off to renew and recharge whereas sick time is meant to be a safety net for unplanned absence due to illness. There are organizations that pool all paid time off, including sick time, into one consolidated program, but I think these are still pretty rare.

Lastly, tracking sick time separately from vacation time helps with Family and Medical Leave Act (FMLA) compliance.

How do PTO or open time policies impact the Family and Medical Leave Act?

[Joyce] This is an interesting question, since FMLA leave is unpaid time by definition. I’d think that if an employee otherwise qualified for FMLA leave, the presence of an open vacation policy might mean there’d be no “buffer” of accrued paid leave for a person to tap before they’d go to unpaid leave.  This would also be the case with disability leaves.

Organizations might want to track sick time separately to support mandated leave programs such as FMLA.  It is the responsibility of the employer to identify a potential FMLA event.   Tracking sick time separately aids in the identification of potential FMLA events.

From an administrative standpoint, what would employers need to consider if they implemented an open time off policy. I mean, even if a company doesn’t accrue vacation time, they still need to keep track of requests, right?

[Joyce] I would think so – particularly in positions that require coverage or advance planning.  For these open plans to succeed, managers have to be aware of employee plans and ensure that the planned time off won’t result in an adverse business outcome.  In an hourly environment, managers need to know when shifts will be open so that they can schedule staff accordingly.

By whatever means organizations decide to limit PTO, they need to ensure that the policy is implemented consistently so that they don’t leave themselves open to claims of discrimination.  This may be particularly tricky if the determination of a leave is always left up to the individual’s manager.

These plans require that a lot of trust exists between managers and employees.  But as Peter Drucker famously said, “you can’t manage what you don’t measure”.

In the Fast Company article, they talk about unlimited vacation increasing productivity. Kronos is all about managing time to increase productivity. What other things can a company consider to improve productivity (besides unlimited vacation)?

[Joyce] The same things that increase employee engagement can increase employee productivity – good job fit, training and support, a mutually respectful relationship with your manager, clear communication about goals and objectives, and providing people with rewards associated with higher productivity.   At Kronos, we also help our customers to optimize productivity through a variety of solutions designed to help them manage labor expenses while complying with relevant labor regulations (state, local, federal, union, etc.) These solutions include time and attendance, absence management, HRMS, payroll, optimized scheduling, labor analytics, and hiring.  These solutions can be accessed via mobile devices or managed by Kronos in the Cloud to further reduce the burden on the company, freeing their IT resources to focus their productivity on issues that are core to the customer.

Many thanks to Joyce for sharing her expertise. If you’d like to learn more about the Kronos Workforce Institute, check out their blog, like their Facebook page or follow them on Twitter.

Has your organization changed time and attendance policies recently? Share your experience in the comments.

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