Standard PTO Policy for Small Business

A standard PTO for small businesses depends on the years an employee worked for the company. On average, the standard PTO for one to five years is ten days and six to ten years averages fifteen days.

Author: Brad Nakase, Attorney

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It can prove a challenge to ensure that the company remains well-staffed while employees take vacation. Also, it takes careful thought to design a PTO policy that attracts good employees who care about the benefit of vacation time, all while sticking to state regulations.

A small business PTO policy determines how an employee of a company can save hours for personal days, sick days, and vacation days. Employees can use PTO days as they see fit, though most companies want their employees to build up PTO with a maximum number of days. Also, some businesses let PTO days expire if they are not used within a certain period. By contrast, some companies choose to offer unlimited PTO, and employees can take days off so long as they have completed their work.

A lot of these factors are affected by a particular state’s regulations. Currently, there are no federal laws that concern vacation policy for small businesses. A company’s primary consideration regarding paid time off policy is recruiting top talent to work for them.

In the United States, PTO usually starts at two weeks per year, in addition to paid federal holidays. The number of PTO days might increase the longer an employee stays at a company. In some industries, PTO is saved based on hour worked, and these days may carry over from one year to the next. They may also be given up if not used within a certain period of time. Some states mandate that unused PTO time be paid off at the time of an employee’s termination, while some do not have this requirement.

There are several factors that play a major role in determining a company’s PTO policy. PTO is an important part of an employee’s benefits package, and many individuals look at a company’s PTO policy before accepting a job. That said, it is also the case that many employees do not use all their PTO. The study revealed the following factors as the most important in determining PTO policy:

  1. Usage

As of 2016, 70% of survey respondents did not use all of their PTO time. Nationally, this equals 600 million unused PTO days. Employees who had ten or more unused PTO days made up 26% of the sample. The average vacation policy for small businesses granted employees 11 to 15 PTO days a year, though 16% of survey respondents received none.

A business owner should encourage his or her employees to make use of their PTO. This will allow employees time to rest and recuperate so that they can return to work feeling energized and ready to perform.

  1. Cognitive Dissonance

The usage numbers contradict another of the study’s interesting findings, which reported that 63% of workers would not take a job that did not have PTO. Almost 88% of answerers wanted their employers to offer PTO, and 85% claimed sick time was important to them.

So, it appears that PTO is desired but not always used. Almost half of respondents reported that they were too busy to claim their PTO, but a third said they would be happier if they received more PTO.

A business owner should encourage his or her employees to take their earned PTO time. If an employee shows stress about using their time off, then a business owner should help them find solutions. These solutions may include finding someone to cover their work while they are away, or perhaps allowing the employee to complete a certain project when they have returned to the office.

  1. Parental Leave

The study discovered that only 11% of companies offered paid maternity leave in addition to PTO. This figure does not reflect the 72% of employees who want this benefit. In addition, around 8% of employers provide maternity and paternity leave along with PTO.

Younger workers care about having paid leave for both parents. If a business is interested in hiring millennial and Gen Z workers, then it could benefit the company to offer both maternity and paternity leave.

  1. Spending PTO Days

The survey reported that a little under a third of those surveyed used their PTO days as vacation time. Approximately 5% of the employees traveled overseas, while a quarter chose to stay at home. About 28% said that they used PTO days to spend quality time with their families.

Offering PTO days gives employees a chance to do the personal activities that are important to them.

  1. Trading Salary for PTO

According to the survey, 20% of employees would take more PTO instead of a raise. Sixty-two percent preferred to give up a raise in return for more flexible work hours. The second of these benefits is often a good option for employers because it costs little if anything. If a business owner is not able to give hardworking employees a raise, then he or she may wish to give them some additional PTO. This can improve employee morale and engagement, and employees will be motivated to work hard to receive more days off.

The Family and Medical Leave Act of 1993 mandates that covered employers grant employees unpaid leave for qualified medical and family reasons. State laws vary in their treatment of paid leave. For instance, California does not permit paid vacation time to be given up, and any unused time must be paid out at the time of termination. In New York, businesses with five or more employees are required to offer paid sick days.

How can a business establish a PTO policy?

With the results of the above survey taken into consideration, a business owner’s path toward creating a PTO policy rests on the following questions:

  • Have You Considered your Specific Business? A business owner should figure out the number of PTO days that is appropriate for his or her company, industry, locale, and staffing requirements.
  • Will PTO Days Roll Over? A business owner should decide whether their PTO days will expire or roll over into the next years. If employees are allowed to roll over their time, they should be given easy access to their PTO bank so that they can manage their time. An owner should be wary of an expiration policy causing a lot of turnover at the end of the year.
  • What Will Your Dispersal Method Be? A business owner could distribute an annual amount at the start of the year, or instead institute an accrual policy which allows employees to earn their PTO over time.
  • What Can You Do with Unused PTO? A business owner should figure out what can be done with a departing employee’s unused PTO. Some states mandate that it be paid out at the conclusion of an employee’s tenure.
  • How Will You Ensure Employees Know the Policy? A business owner should publish the PTO policy and make sure that all employees understand its content. The policy should answer all major question concerning PTO days.
  • How Will Employees Request Days? A business owner should ensure that employees know how to request PTO. This can be done though the company’s employee portal, by contact a supervisor, or by contacting HR.
  • Will the Management Team Be Involved? A business owner should make sure that his or her management team is aware of vacation requests. This way, other team members can cover absent employees’ work if needed.
  • Will You Reward Tenured Employees? A business owner should consider giving additional time off to employees who have given the company years of service. For instance, employees who have worked for the company for more than three years may get five extra days of PTO every year.

Conclusion

It is fairly easy to establish a PTO policy for one’s company, and other businesses can offer examples of sensible policies. If a business owner decides to offer PTO, he or she should ensure that their payroll system is prepared to account for the time off. A well-structured paid time off policy can help employee retention rates and contribute to successful future recruitment.

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