It is well known that when employees take time off away from work, they become energized, productive and happier in the long run.

Paid time off (PTO) is one of the most valued benefits offered to employees.  According to the Harvard Business Review, vacation time ranks in the top three benefits most important to job seekers. But there are many factors employers need to consider for a PTO plan to be successful and work for everyone in your organization.

PTO bank versus separate sick and vacation time

Traditionally, employers have offered a set number of PTO days which were specifically allocated to vacation, sick, or personal leave.  With this structure in place, employees in good general health are often left with a disproportionate amount of unused sick leave, while employees with health issues sometimes need to dip into their vacation time.

According to SHRM, a growing trend among employers to make PTO fair for all employees is to combine all vacation, sick, and personal time into one collective PTO bank for employees to use however they wish.

Advantages to employers who use PTO banks include:

  • Less detailed tracking for Human Resources (a day off is a day off)
  • A drop in unscheduled absences
  • A reduction in the number of sick call-ins from healthy employees who feel they are owed their sick days, according to USA Today.

There are also downsides to implementing PTO banks:

  • According to SHRM, under many state laws, employers with a PTO bank are required to treat accrued but unused balances as vacation pay when an employee leaves the organization. There is no such requirement to pay out unused sick leave.
  • SHRM also reports that some states and localities have laws requiring employers to provide employees with a specific amount of paid sick leave which can make it tricky to combine PTO.
  • Employees who want to optimize their vacation time may be tempted to come into work while sick to avoid using PTO.

Weighing the pros and cons is key to deciding whether a PTO bank would be right for your organization.

Unlimited PTO

A newer idea that some employers are implementing for their exempt employees is unlimited PTO.

At first glance, it is easy to see why unlimited PTO would be a boon to employees. Although unlimited PTO seems to favor the employee, employers have a lot to gain as well.

According to Inc., unlimited PTO:

  • Helps employers attract and retain top talent
  • Boosts employee morale
  • Cuts costs by eliminating the need for PTO payout
  • Saves Human Resources valuable time.

SHRM states that contrary to what one might think, employees with unlimited PTO tend to take less vacation than those with caps on their vacation days.

Unlimited PTO doesn’t work for everyone:

  • Nonexempt employees whose paid time is governed by wage and hour laws would not be eligible for such a benefit.
  • Employees who work in a “workaholic” environment without a designated allowance of PTO may feel guilty taking any time off at all, leaving them prone to burn out.
  • SHRM also warns that an unlimited PTO policy may not work for employees who are required to perform their duties onsite at fixed hours.

Unlimited PTO should be designed to fulfill a culture in which employees are trusted to get their jobs done, whether or not they are in the office.

Creating a Culture that Encourages Vacation Time

Whether your vacation and sick time are separated out, combined in a PTO bank, or unlimited, it is vital that your employees actually use their PTO and really unplug.

A Glassdoor survey shows that the average American employee only takes half of their vacation time, and when employees do take paid time off, 61% admit to working. The health and productivity benefits of spending time away from the office are well known, so it pays to encourage your employees to use their PTO.

To help employees get over the guilt-factor of taking time off, SHRM suggests having upper management set an example by taking their own vacations, as well as showing an interest in their employees’ trips. Encourage employees to share photos or discuss their adventures in meetings.

Insperity suggests sending emails quarterly to remind staff about the PTO policies including caps and payouts, and provide instructions on how employees can check their available PTO hours. This will help employees plan and use their PTO in the best way, regardless of which type of plan you use.

Travel stipends are also becoming more popular. Business Insider listed nine companies that offer travel stipends anywhere from a few hundred to several thousand dollars annually, some with the added rule of no working while on vacation.

Now that’s an incentive to take a break!