Compensation

Pros and Cons of Using a PTO Bank Instead of Vacation and Sick Time

Does your company have a set number of vacation days and a separate number of sick days that employees may take without losing pay? Or have you implemented a more catch-all system of paid time off (PTO), in which all vacation days, sick days, and personal days are lumped together?

There are pros and cons to using a PTO bank, and employers would be well-served to consider the ramifications before switching.

Benefits of Using a PTO Bank Instead of Separate Vacation and Sick Time

First, let’s take a look at some of the benefits to using a combined PTO bank rather than separate vacation and sick leave allotments:

  • Employees may see PTO as a benefit as long as it’s communicated well. It feels like an improvement over separate accruals because an employee can theoretically take more vacation time if he or she doesn’t get sick often.
  • Employees no longer have to make excuses (or lie) when they want to use a sick day but are not ill enough to see a doctor.
  • PTO can be touted as a benefit to assist in recruiting efforts.
  • PTO is often easier to administer up front, since there’s no question of which accrual the leave comes from. Simpler administration can mean cost savings as well as better consistency in leave tracking.
  • Employee burnout can be reduced if employees are encouraged to take their PTO days. (PTO systems often have accrual caps built in, which encourages employees to use their days.)
  • Employees who have PTO report feeling more empowered because they do not have to justify each day off; they can take their days as needed for their particular circumstances, allotting between vacation, sick days, and personal days as they see fit.

Potential Issues with Using a PTO Bank

While there are a lot of benefits of using a PTO system, there are drawbacks as well. Let’s take a look at a few:

  • Some employees may feel slighted when switching to a PTO system, especially if sick days weren’t monitored closely under the old system. They may feel they’re now being penalized by having sick days count against their days off. This can be problematic since PTO banks tend to be seen as vacation time—even though they’re meant to cover both vacation and sick time.
  • PTO is generally treated the same as vacation time under the law—if an organization is located in a jurisdiction where accrued vacation must be treated as wages upon termination, then the whole accrued PTO bank must be paid out as such. This could mean the company has a higher financial liability when terminating employees. (In systems with separate accruals for vacation and sick days, employers are usually only required to pay out accrued vacation, but not unused sick days.)
  • In practice, employees tend to view PTO like vacation days, which means they may take more time off than they would with separate systems. With separate vacation and sick days, often the sick days are left untaken if the employee does not fall ill. While extra days taken as vacation can benefit employees and employers alike, it can also mean more days must be covered by colleagues and the employer may need to modify work practices to accommodate this.
  • Conversely, employees may be reluctant to take PTO when they’re sick if they begin to view their PTO as entitled vacation days. This means that despite having PTO at their disposal, employees may be more likely to come to work feeling ill than they would with a separate sick day policy. The rationale here is that it feels like they’re being forced to lose vacation time when they take a day off for an illness—even though PTO is meant to cover both.

What does your business do? Do you use PTO? Vacation? Personal days? What has been your experience?

 


About Bridget Miller:

Bridget Miller is a business consultant with a specialized MBA in International Economics and Management, which provides a unique perspective on business challenges. She’s been working in the corporate world for over 15 years, with experience across multiple diverse departments including HR, sales, marketing, IT, commercial development, and training.

  • Barb

    If you’re in California, know that you can still have a PTO bank under the paid sick leave law as long as it satisfies the minimum requirements.

  • Arnie T

    One negative about having separate sick time and vacation time is that if employees are abusing the sick time rule it ay cause either resentment among other employees who are playing fair. Or the abuse of the policy may encourage others to fudge as well.

  • Chris

    My company used to have unrestricted sick days (except for longer periods that changed to separate categories like short term disability). Now we have PTO for vacation and sick days, and they upped our PTO to 5 days more than our previous vacation days. Of course, everyone treats this like more vacation.

    Which means everyone works sick, and it’s miserable. I’ve been sick 3 times in the last 6 months, and I was probably sick 3 times in the last 6 years prior to this policy. You can hear people coughing constantly in the winter.

  • Al

    The problem with PTO systems is in the process of switching to one, the employee inevitably is the one who ends up getting shafted.

    Our paid vacation hours were previously based on years of employment, per 52 week cycle, NOT the exact actual time worked in previous 52 weeks. Generally if your schedule was 4 10-hour shifts a week that’s how many days you earned in paid vacation hours, whether you actually worked 38 hours a week or 42. In my case, 5+ years of employment meant I had earned 2 weeks of paid vacation time per year. 80 hours, cash value, and no reductions if I took vacation time within the last 52 weeks, so long as they were in the previous year of employment.

    New State Sick Leave law required 40 hours of dedicated paid sick leave, no cash value.

    Employer implements a new PTO system that is based on hours worked in previous year. Applies it retroactively and without notification to employees, and without paying out the cash value of previously earned vacation benefits. Under the new system, the maximum PTO accrual permitted is 80 hours, regardless of how much OT an employee has/will work. The new system is implemented in such a way that employees of 5 years or fewer have had their paid time off benefits doubled, while employees of 5 years or more take a 50% CUT to previously earned/previously promised dedicated vacation time.

    80 hours of new PTO – 40 hours of new required paid sick leave = 40 hours of vacation time.

    For employees of 5 years tenure or longer, they have taken an immediate 50% CUT to the paid vacation benefits they were promised as terms of their employment. Also, because PTO is not subject to the requirement that it be paid out if not used, it has no cash value. That means any previously earned paid vacation benefits no longer have a cash value, and therefore is a WAGE cut.

    And since the new system means that any actual USE of PTO means a reduction to the amount of PTO accrual possible for the next year, employees can’t use their PTO without being penalized both at the time of use AND again by having less PTO earned for the next year.

    Triple whammy, and our complaints were met with threats of immediate termination if we did not accept the new terms of employment at that exact moment (no time allowed to consult with an employment lawyer, as ‘returning to work’ is a defacto acceptance of the new terms, and the meeting in which these new terms were revealed to us were held MID WORK-DAY, so finishing our shift was agreement to the terms, and not finishing our shift would have been treated as quitting the job entirely).

    You can gild it with 14k gold frosting and serve it on a sterling silver platter, but if you baked the cake with manure it’s still going to [taste bad].

  • Phillip Marsh

    Just admit it. PTO is a way for employers to screw over employees. You never get the same amount of vacation and sick time in PTO. In many cases you get less equivalent PTO than just vacation days. The only one that truly benefits is the company.

  • Bonnie Little

    My daughter works in Nevada. Her normal wage is $15.50 per hour, with 8 hours of PTO accrual per month. However, PTO is paid at $11.98 per hour. Is this legal?