How Should a Business Provide Time Off?

In today's world, there are many options for providing paid time off for employees. Which one is best for your company and for your employees?

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by Ethan Hausmann

Everyone agrees that giving employees some form of paid time off is a noble goal. But the options are endless. Do you give a certain number of vacation days, sick days, and personal days? Or do you just lump everything together as PTO (paid time off)?

Do vacation days expire at the end of the year or do they roll over? What about something even more radical with a point system for benefits? Every company needs to decide which method best fits their culture.

Traditional distinctions in types of paid leave
Many companies give employees a certain number of vacation days and a separate set of sick days. There is no crossover allowed. Vacation days are scheduled days off and sick days are short notice time off. Often the company will investigate if you take too many sick days in a row or if you happen to have a sick day every single Friday. Some businesses also give a few personal days for use as short notice time off for a reason other than illness, such as a child's soccer game or doctor's appointment.

This system works best for employees who always take all of the time allotted them. They use up all the vacation time and sick days as soon as they get it. Usually the days don't roll over at the end of the year, but they could rollover (often with a maximum cap so someone can't take 6 months off if they really save up).

No distinctions in PTO
Another option is to just give employees a set number, say 15 days of PTO (paid time off) every calendar year. A wise and healthy person can end up with 15 full vacation days, more than the previous system. A sickly or unprepared person gets up to 15 short notice days off.

It doesn't make much difference to the employer. They would pay the same for vacation or sick leave. Scheduling might be an issue, but very few employees will use all the PTO for sick time. Usually PTO can be banked from year to year, but often people still use it all up since they have more flexibility.

A new idea
Both of the previous systems are in wide use. You could create a unique and innovative system though. What if you replaced vacation days and sick days and health insurance and dental coverage and 401k savings with a point-based system?

Under this method, the company would translate the average cost per employee per year for all of the above benefits into related points. It could be 1 point for every $10 of cost for example. So lets says that it costs a company about $4,200 per year for an entry level employee. Thus that employee gets a total of 420 points to allocate how he or shes wishes. Maybe PTO days each cost 10 points at redemption, having health insurance costs 120 points, dental is 50 points, 401k matching contribution is 100 points, etc.

This would benefit employees who don't want dental coverage, but would like a higher matching 401k contribution. Or those who don't need health coverage because their spouse has a better plan, but would like more PTO. Or maybe someone almost never takes a day off, they should have the option of a higher match for their 401k as a reward for their diligence.

For the company, this kind of system might be easier to manage, since you don't need to keep track of what type of time off or benefit is requested. All you do is count points used.

As you can see, they are a bunch of options out there. Figure out which one works best for your employees and your company as a whole.