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Paid Time Off: The Complete Business Owner & Managers Guide

Paid time off hour glass

Rest and relaxation are essential for the health, happiness, and productivity of your team. The weekend helps you and your employees recharge your batteries, but what happens when two days just isn’t enough? Consider implementing a paid time off (PTO) policy that gives your employees a longer break.

On the face of it, creating a paid time off policy may seem like a simple task — here are X hours of paid time off; use them wisely — but the reality is much more complicated. While there are no federal laws in the United States that govern the presence or structure of paid time off, some cities and states do require employers to provide at least a few days of paid sick leave. Check your state and local laws before implementing a policy for your business.

So what’s the best way to implement a paid time off policy for your team? In this article, the management experts at Sling tell you everything you need to know to make the right choice for your business.

What Is Paid Time Off?

Paid time off is exactly what it sounds like: time away from work during which the employee is still paid. This is in contrast to unpaid time off, which is time away from work during which the employee is NOT paid.

Two Types Of Paid Time Off

Most businesses divide paid time off into two categories. These categories are very appropriately named Category 1 and Category 2.

Paid Time Off Categories

As you can see from the types of leave listed in each category, employees will use Category 2 PTO more often (i.e., several times each year) than Category 1. In fact, employees might only use Category 1 leave once or twice during the entire time they work for you.

Because of the frequency with which it occurs, the remainder of this article will deal with Category 2 paid time off.

Factors To Consider When Creating Your Paid Time Off Policy

1) Availability Of Policy Guidelines

The first factor to consider when creating your paid time off policy is how you’re going to make the guidelines available to your team members. We suggest including the criteria in your employee handbook. That way, everyone has access to it from day one.

2) Block Of Time vs. Different Day Types

Employees working while a team member is on paid time off

The simplest PTO system is to award a block of hours of paid time off to your employees at the beginning of the calendar year. They can then draw on those hours for any time off they need.

A second option is to award a specific number of days for each of the events in Category 2 (sick days, personal days, vacation, holidays). Tracking for this method is more complicated, but knowing the details of each employee’s leave can influence what you say and do during their review.

3) All-At-Once Or Accumulated

You also have the option of distributing paid time off all at once (e.g., at the beginning of the year), or dividing it up so that it becomes available periodically throughout the year (e.g., every pay cycle, once per month, or quarterly).

4) Different Amounts Of PTO For Different Groups Of Employees

Group of employees with paid time off

Many companies choose to award different amounts of paid time off to different groups of employees. The most common way to do this is to allot paid time off based on how long an employee has worked at your company.

So, for example, an employee who has worked for you for 10 years might get 50 hours of paid time off, while an employee who has worked for you for two years might get the standard 15 hours of paid time off.

You can also subdivide the hours of paid time off based on job title. Senior positions within your business (e.g., CEO, CFO, group manager, location manager) receive more PTO, while junior positions receive less.

5) Unused Days

Another essential factor to consider when creating your paid time off policy is what you will do with unused days. Does the leave expire after a certain period of time (e.g., 12 months)? Or will you allow unused time to carry over into the next cycle?

Carryover is the norm, but employees sometimes take advantage of this variable in an attempt to accrue large chunks of time. Capping the carryover (e.g., at 1.5 the total annual allotment), or limiting the carryover to a specific number of days puts limits on this option and encourages your employees to take the time off they need.

6) Time Period

You’ll also need to decide on the time period in which your paid time off policy operates. There are two options for this variable: calendar year or hire date.

Basing your PTO policy on a calendar year (e.g., January 1 to December 31) is more straightforward, but calculating leave for an employee who starts in October (for example) can be difficult.

On the other hand, basing your PTO policy on an employee’s hire date takes more work to track (software can help) but doesn’t require that you prorate for new employees.

Which Paid Time Off Policy Is Right For Your Business?

Work desks

There is certainly something to be said for the simplicity of a straightforward block of paid time off that your employees can use as they see fit. But that plan may not be the right for your business.

Your company may do better with granting three sick days, three personal days, four holidays, and seven vacation days (for example). It all depends on your team members, your company culture, and the location of your business.

The nice thing about your paid time off policy is that you can easily tweak and refine the guidelines if you find that another method works better. As long as you transfer all unused paid time off from the old system to the new, it’s doubtful that your employees will even know the difference.

For more free resources to help you manage your business better, organize and schedule your team, and track and calculate labor costs, visit GetSling.com today.

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