Benefits and Compensation, HR Management & Compliance

Ask the Experts: Pitfalls to Avoid When Moving to PTO Plan

Question: We would like to convert our vacation and sick leave benefits into a PTO plan.  What steps should we take in the conversion?

Answer from the experts at HR Hero:

An employer really has a great deal of discretion in how they convert vacation and sick time into a PTO plan. While there is no specific best or required practice for converting, the overarching theme is that the more communication and advance notice employees have, the better and the less likely they are to be frustrated by the change or feel they are losing a benefit.

PTO policies are becoming increasingly popular in lieu of separate sick leave and vacation policies. They tend to boost employee job satisfaction while reducing unscheduled and unexpected leaves of absence. However, PTO administration errors can lead to huge headaches for any employer. Here are a few potential PTO policy problems to avoid.

  1. Ineffective communication of policies and expectations. For example, if there are requirements around the notice required to take time off or certain times of year that it can/cannot be taken, this needs to be communicated clearly.
  2. Supervisors may be inconsistent when they apply company policies. For example, supervisors may avoid dealing with attendance problems to avoid conflict, and hope the situation will correct itself. To avoid this, it is important to have a written PTO policy that outlines the factors that should be used when granting or denying PTO. Also be sure to train supervisors on how to apply the PTO policy appropriately.
  3. Rollovers can create high PTO banks. Many employers do allow rollover, though it’s not always the recommended practice because employers don’t want someone to leave with a high PTO bank to be paid out. To avoid too much accrual, consider requiring written approvals for rollovers, and limit them.
  4. High payoffs. This can be avoided by encouraging workers to use their banked time, not wait for it to be paid out. It can also be tough to figure accrued rates, so many employers simply pay it out at the current rate. This can cost more money than if they had cashed out earlier.
  5. Carryover of old accrued leave to a new PTO bank. The biggest issue in switching from traditional PTO policies to a PTO plan is dealing with employees who have built up lots of leave under the old system. Some employers pay out the accrued leave over time, some pay it out immediately and start over, while others pay it out at retirement. Don’t take away anything that’s been vested with a worker. Going forward, you want to control the carryover of large leave amounts. Make sure everyone understands the rules on how both cash out and PTO works.
  6. Last-minute absences. To combat this, start with the presumption that regular, predictable attendance at work is a reasonable expectation, period. This should be in your employee manual and it should be reiterated. What should you do if employees miss work a lot without notice? Use counseling, followed by discipline. Also, if you can identify causes – e.g., the start of hunting season, beginning of summer – work with employees if possible to adjust schedules or request earlier notice so that you can keep your operations staffed reasonably.
  7. Collecting negative balances. If an employee has received advance paid time off, and then his/her employment is terminated with that negative balance, should you try to collect it? You could, but be careful – especially if the termination was involuntary. State law may control whether you can deduct it from their final paycheck with or without their authorization.