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8 Things to Consider When Creating Your Time Off Policy

Creating your first time off policy? Or, rethinking an existing one? Let’s explore some key points to consider.

There are oh-so-many excellent reasons a person might need time away from work. From vacations planned well in advance to unforeseen circumstances (like oh, I don’t know, a pandemic), offering your employees a paid time off (PTO) policy that’s comprehensive, inclusive, and catered to their needs is an important part of any benefits package and employee experience. A generous time off policy leads to happier, more productive employees. It can also act as a competitive advantage in attracting top talent.

And yet, Canadian workers receive an average of only 10 paid vacation days per year. This lands Canada second to last among OECD countries. The US is the only country that offers fewer days off than Canada. By comparison, employees in France and Britain get up to 30 and 28 days respectively. Spain takes the cake at 39 days. Companies in Japan, which average the same number of paid days off as Canada, are taking steps to reform its policies. The hopes are that this will help counter high stress levels and other health problems associated with overworking. It also goes to show it’s never too late to take a second look at your policy.

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What is Paid Time Off?

Paid time off (PTO) is exactly what it sounds like: paid time away from work. Although the two most common PTO categories are vacation and sick days, some businesses offer many types. These can include maternity/paternity leave, bereavement, jury duty, community service, and even birthdays.

What is a Time Off Policy?

Time off policies encompass your paid time off types but also unpaid or partially paid time off types, if you have these in your organization.

These types can all have individual allowances or can be pooled together for one bank of time off (that includes PTO, unpaid, partially paid, etc.). This is becoming quite common as it dramatically simplifies things from an administrative perspective. A good first step is deciding how to set up your time off types.

Types of Time Off Policies

Now that you’ve thought about your time off types, it’s time to decide on the type of time off policy. To help you decide, here are the most common policy types and what they entail. Don’t hesitate to combine them creatively into the ideal time off policy for your business.

Traditional or accrual

This is the most common time off policy type and has been around the longest. Employees accrue a specific amount of hours based on the number of hours worked or the passage of time (i.e. every 2 weeks). For instance, a policy that offers employees an accrual of 2.5 hours of PTO for every 40 hours worked would translate to 130 hours (roughly 16 days) of annual PTO.

Employers might also create milestones, whereby an employee can accrue PTO faster if they’ve been there longer—an effective way of incentivizing employees to love and keep their job.

Allotment or Upfront

Allotment policies too, offer employees a specific amount of PTO annually. But unlike accrual policies, they typically give an employee their PTO allotment all at once, either on January 1st, the employee’s work anniversary, or another predetermined date. Employees are then invited to schedule their time off throughout the year as they see fit. This is a good option for businesses that want to cut back on the administrative duties of tracking accruals and hours worked. Another option is to use software that automates the accrual process

Unlimited

Startup and tech companies looking to gain a competitive advantage have popularized unlimited time off policies in the past decade. Employees are simply granted time off as needed, without having to worry (on paper, anyway) about how much time they’re taking. Many employees appreciate the sense of agency and HR managers love that there are zero hours to track.

The downside to unlimited PTO, however, is that employees are often confused about where the unspoken ‘line’ is. The SHRM has pointed out that employees with unlimited vacation actually take less time off than those with a traditional policy. Another downside is that employees with seniority are not incentivized with extra PTO.

Unlimited policies thrive in organizations with a strong culture of trust and communication. If this is the route you take, ensure you establish guidelines around over- and underuse and foster a culture that accepts the benefits of time away from work.

Mandatory

Like allotment policies, employees with mandatory PTO policies are given a certain amount of time off annually. The difference is employees are mandated to use their entire allotment. This way, no one ever has to wonder whether they’re taking too much time.

Although mandatory time off policies are far less common, the idea may be catching on. Employees love the guaranteed time off and employers see the tangible benefits in their workforce. While managing a mandatory time off policy can present certain scheduling challenges, these can be overcome with transparent tracking processes like software or a shared company calendar.

Key things to consider when creating a time off policy

Whether you’re creating a brand new time off policy or revising an existing one, there are numerous factors to consider. After all, when it comes to policy, comprehensive is always best!

1. Amount of  PTO

Once you’ve identified which time off types you wish to offer and what type of time off policy you’ll be creating and implementing, it’s time to decide how much time off to allot, both per category and/or in total. It’s up to you to determine how many days off an employee receives and exactly how that time is doled out.

2. Accruals

You’ll also need to determine whether employees should gain access to their entire PTO bank the day they’re hired, or whether they’ll accrue it throughout the year. If it’s the latter, will employees accrue their PTO each pay period, monthly, quarterly, or all at once annually?

It’s important to land on the rate and terms that best suit your business. An annual accrual rate is common, possibly because it requires the least management, but also because it gives employees the flexibility to schedule their time off further in advance.

3. Carryover

Regardless of the policy you choose, you’ll still need to decide on your renewal policy. Will your PTO renew each year or will unused time carryover into the following year? In making this decision, always ensure you’re compliant with state law, of course, as the allowances on this vary. 

If you have concerns about employees not taking time off and accumulating huge sums of PTO, you’d do well to either establish a maximum number of days that can carryover or come up with ways of incentivizing time off!

4. Payouts

Some businesses opt for unlimited PTO. This can be in an effort to avoid a huge payout if an employee leaves before using up their PTO.

Other policy types go the use-it-or-lose-it route. If a departing employee has unused hours, however, some states consider PTO a form of earned wages and require the employer to compensate them for that remaining balance. Although many states don’t require this, many businesses do it anyway—because it’s good practice. And should employees get paid for their unused time even if they aren’t leaving their job? Some businesses say yes, and others say yes, but at a discounted rate.

5. Borrowing

There is also the question of whether or not to allow employees to borrow from their PTO bank. For example, during a new hire probationary period, you can offer employees the option of “borrowing” from their future PTO hours. This lets them take care of life commitments they might have made prior to accepting the job. 

If your business can handle allowances like these, this a great way for fostering employee satisfaction. It also acknowledges employees’ lives outside of work.

6. PTO request process

It’s important to determine set procedures for booking vacation time (or other time off). Are there limits to the number of people in the same department who can be off at the same time? How are requests submitted? How are they approved?

Be sure to clearly explain this process as part of your policy, including any deadlines or time periods that are off-limits. Share this policy among all staff, and train managers on how to apply it fairly. 

7. Infractions

The best way to avoid a situation where employees do not honour your PTO policy is to ensure all employees have access to it. Your paid time off policy should conclude with a section that very clearly outlines repercussions in the event that an employee does not abide by the policy. Write down all steps that will be taken for various infractions to avoid dilemmas down the line. You can also use infraction tracking software to streamline this process.

8. When to change policies

As a general rule of thumb, every policy should be reviewed at least every 3 years. Most experts recommend a good old annual review. It’s also a good idea to revise or change your time off policy when unexpected events (like a pandemic) occur. Unprecedented events sometimes require shifting our relationship to work and paid time off in one fell swoop.

How to keep track of it all 

Without the right software, the administrative cost of continually calculating balances, accruals, and responding to requests can be overwhelming for HR and managers. PurelyHR’s Time-Off module allows you to track both paid and unpaid leave. You can automate accruals, renewals, approvals, and policy changes. You can also create as many time-off types as you like and employees can access their balances anytime.

Bottom line: paid time off is the stuff of life. Creating a strong, generous policy is a great way to invest in the health of your business and your employees.

The PurelyHR Team

PurelyHR is powerful modular software for your everyday HR. We want to give you more time by providing industry-leading tools for essential tasks like time and attendance tracking, performance reviews, infraction tracking, and more. The PurelyHR blog is your resource for the latest in HR, workplace trends & culture, and product updates.