Paid Time Off

PAID TIME OFF POLICIES DO’S AND DON’TS TO

PREVENT ABUSE

NATIONAL CONSTITUTION CENTER&

KENNETH A. SPRANG, ESQ.

Copyright 2011, Kenneth A. Sprang 2

Overview of Sick Leave and Other Employee Leave

43% of nation’s private workforce have no sick leave.

Only one-in-four (23%) of private-sector workers in the bottom 10% of the wage distribution in their occupation have paid sick days or leave.

Eighty-three percent (83%) of employees in the top 10% of their occupational wage distribution have sick leave.


Overview (cont’d)

Smaller businesses provide less leave In companies with fewer than 50 employees,

only 51% of workers have paid sick days or leave

In companies with 500 or more employees, 78% of employees have such leave.

Non-union workers are less likely to have paid sick days or leave (60 percent) than workers who are in unions (66 percent). Consider in light of pending EFCA


International Comparison

Only three countries – the United States, Canada, and Japan – have no national policy requiring employers to provide paid sick days for workers who need to miss five days of work to recover from the flu. In Canada provincial law often provides coverage.

The United States is the only country that does not provide paid sick leave for a worker undergoing a fifty-day cancer treatment.


Traditional Leave Policies

Traditional leave policies have provided Sick leave Vacation Personal Days Jury Duty Military Leave Holidays Bereavement Leave


Average Vacation in United States

Average Number of Vacation Days in the United States

Years of Service Average Leave/Year

Less than 1 year 9 days

2 years 11 days3 years 12 days

4 years 12 days

5 years 14 days

6 years 15 days

7 years 15 days

8 years 16 days

9 years 16 days

10 years 17 days

11 years 18 days


Average Vacation in United States


12 years 18 days

13 years 18 days

14 years 19 days

15 years 19 days

More than 15 years 21 days


Average Total Paid Days Off in United States

Average Number of Vacation Days in the United States


Less than 1 year 14 days

2 years 17 days3 years 18 days

4 years 18 days

5 years 21 days

6 years 23 days

7 years 23 days

8 years 23 days

9 years 23 days

10 years 25 days

11 years 26 days

9

Average Total Paid Days Off in United States


12 years 26 days

13 years 26 days

14 years 26 days

15 years 27days

More than 15 years 27 days

Copyright 2011, Kenneth A. Sprang


Sick Leave

In Society for Human Resource Management's 2004 Benefits Survey, 86% of respondents offer some sort of paid sick leave to employees, either specified as sick days or in a paid time off plan.

Average is 11 paid sick days per year. Of those who provide paid sick leave, 52% allow

some portion of the unused sick days to be rolled over into the next year.


Current Law

Currently no state mandates sick leave, though several have entertained proposals, including CT, FL, ME, MD, MA, MN, MO, MT, NC, OH, PA, VT, and VA

CA, HI, NJ, NY, RI provide benefits for employees with temporary illnesses lasting more than 7 days

San Francisco, Milwaukee and the District of Columbia mandate sick leave.

Legislation is now pending in Congress to mandate sick leave and vacation.


Proposed LawsFederal Healthy Families Act

Would require 1 hour of leave for every 30 hours worked.

Accrual up to 7 days (56 hours) Employers could require doctor’s certification for

more than 3 successive days


Proposed Paid Vacation Act of 2009

Would require companies with 50 or more employees to offer them at least 1 week paid vacation.

Companies with 100 or more employees would be required to offer employees at least 2 weeks of paid vacation.

Would amend FLSA.


Why Have Paid Employee Leave?

Necessary to attract and keep talent. Employee expectations, custom, etc. To encourage sick employees to stay home and

get well. To recognize the realities of employees caring

for children and elderly parents.


Rationale for Sick Leave Policies

Some argue that paid sick leave actually saves business money, by reducing the spread of illness caused by employees who can't afford to miss a paycheck.

If there is no policy for taking paid time off for illnesses, many workers continue to go to work when they are sick, jeopardizing their own recovery and health.


Sick Leave Policies (cont’d)

Research suggests the absence of leave results in significant costs for employers. Employees who go to work while sick stay sick longer, lower their productivity as well as that of their coworkers, and can spread their illnesses to coworkers, increasing the pool of absent or low-productivity workers.

Taking adequate time to rest and recuperate when sick encourages a faster recovery and helps prevent minor health conditions from progressing into more serious illnesses.


Impact of No Sick Leave

Conservatively estimated, at least 20 million Americans go to work sick because of a lack of sick leave. Parents with paid sick days are 5 times more likely to be able to care for sick children at home than similar parents who do not have paid sick days. Parents with paid sick days are also more likely to provide preventive health care.

Example: Nursing homes that provide their employees with paid sick days have lower rates of respiratory and gastrointestinal illness among the patients they serve.

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Sick Leave (cont’d)

In a study of nurses, most of whom were middle class, paid sick days were the only benefit significantly associated with an increased likelihood of returning to work after developing heart disease or having a heart attack.

Nurses with paid sick days were 2.6 times more likely to be able to return to work after a heart attack or angina.

Copyright 2011, Kenneth A. Sprang


Sick Leave (cont’d)

Firms that provide paid sick days and leave tend to have lower job turnover rates, lower recruitment and training costs, lower unnecessary absenteeism, and a higher level of productivity than firms that do not offer these kinds of benefits.


Advent of Paid Time Off Policies

A 2003 SHRM Survey found that more than two-thirds of U.S. employers have paid time-off banks, nearly double the number in 1999.

Companies promote the policy reasoning that it rewards employees who never call in sick by giving them more days to use at their discretion.

Employers explain they design these programs to provide workers with more flexibility to deal with family logistics because they combine vacation, sick, and personal days into one pool, unlike traditional plans that allot a set number of days for each purpose.

Some employers include holidays in their time-off bank.


PTO Programs

PTO may make even more sense in the modern world.

"Things are different than they were," explained Lori Rosen, an analyst for CCH Inc. "Not only are dad and mom working, but so [are] Aunt Dorothy and grandma. It used to be that when the kids were sick, she came over and baked cookies and watched the kids."

In a modern world, Rosen added, "PTO is the way to do it.”


Rationale for PTO

Employee leave impacts employers costs in a time when employers are seeking to reduce costs.

Compensation for employees' time not worked is the biggest payroll expense after wages and salaries, consuming 12 cents of every payroll dollar, according to one consultant.

Add in pay for overtime or hiring additional workers to make up for absent employees, and the cost soars above 22 cents per payroll dollar.


Advantages of PTO Policies

Workers who are healthy and who have healthy families generally love PTO’s, as it will increase leisure or vacation time.

Employers can treat employees more like adults, allowing them the freedom to use the PTO as they choose.

Unused sick days under a traditional plan often cannot be carried over to the next year, while unused PTO days usually can be, often subject to a cap on total days accrued.


Disadvantages of PTO Policies

Employers converting a traditional time-off plan to a PTO plan often do not give employees the full sum of the previous accrual rates for vacation, personal and sick days; they curb the high cost of time off by shaving some days off the grand total. Example: An employee who received 15

vacation days, 3 personal days and 6 sick days under a traditional plan might receive only 20 paid days off under a PTO plan.

Problem is solvable by maintaining equality in the conversion.


Disadvantages of PTO Policies

Employees with protracted illnesses who use all of their banked PTO days have few or no days left for vacation.

Changes in leave policies represent a "chilling" of vacation time for American workers who already enjoy shorter holidays than Europeans and recently have fallen behind the Japanese.


Designing A PTO Policy

One size does not fit all Example: Fresh Concepts, which deals with

serving food, excluded sick days from its PTO Plan in order to ensure that food handlers to not work if they are sick.

Employees need to know that "if you're truly ill, you should stay home and not worry about your PTO bank,“ according to the company.

Begin by carefully examining your company and determining what, if any, special factors of your business need to be considered.


Designing A PTO Policy

Look at past leave statistics in determining how much PTO to provide.

Make policy generous enough to allow for sick leave and vacation. Consider demographics of your workforce. A school with many younger employees of

childbearing age must anticipate the need of employees to care for sick children.

Determine your goals, e.g., influencing employee behavior, attracting talent, etc.

Consider impact of policy on workforce, i.e., how will it be perceived.


Designing A PTO Policy: Employees Who Do Not Use PTO Days

Establish a “use it or lose it” policy. May want to allow some carryover. Employers

may wish to tie accrued leave to short term or long term disability policies.

Supervisors should clearly be empowered to send sick employees home. Create a culture which encourages employees to take care of themselves (and their colleagues). Make it a positive rather than a negative.

Consider an Extended Sick Leave program to complement the PTO.

Consider a PTO Bank


Extended Sick Leave Option

Rationale: Employers should encourage employees to take vacation time.

European workers are more productive per hour than American workers—link to vacation?

If employees are seriously ill, they could use all PTO leaving no vacation time.

Plan could accrue hours similar to PTO or be a flat annual grant of hours. ESL would be available after one was ill for more than 3 days.


What About Time And Attendance Issues

With PTO, employees use time as they like, giving advance notice except when used for illness or emergency.

Employers still should seek to prevent abuse. Employees who misuse the policy, e.g., calling in

sick at the last minute in order to go shopping should be disciplined.

Employees who waste away PTO and then are absent a lengthy period without pay because they lack any PTO, could face discipline or discharge.

Any “disciplinary” rules should be clearly set forth in the policy.


Paying For Unused PTO

Some states treat PTO and accrued vacation like wages, requiring that an employee be paid for unused time.

A critical element is usually making the policy clear so that employee expectations are consistent with the policy.

Not paying for unused days may encourage employees to take vacation time. Paying for them might have the opposite effect.

May want to allow accrual as part of disability program, as noted above.


Making Your Policy Legally Compliant

Applicable law depends, of course, on where you are located.

Do not overlook local and state as well as federal law.

Federal FMLA and ADA may require integration with the policy.

Local laws mandating sick leave may or may not allow PTO in lieu of sick leave.

If federal law mandating vacation is passed, question will be whether PTO qualifies.


Compliance With FMLA

FMLA allows employees up to 12 weeks of unpaid leave for the employee’s own illness or that of a family member.

Amendments and new regulations allow additional leave (up to 26 weeks) to care for a recovering family member in the armed forces, as well as “exigency” leave which allows leave for various reasons caused by a family member’s call to active duty.

Some jurisdictions allow more than 12 weeks. Employer may require an employee to use paid

leave as part of the FMLA leave.


Compliance With FMLA

Policy should anticipate need for the kinds of leave allowed under FMLA.

Consider any state statutes providing for compensation for employees on leave, e.g., New Jersey. May provide an offset for your PTO policy.


Compliance With ADA

The Americans With Disabilities Act requires reasonable accommodation for disabled employees who are qualified to do the job.

Accommodation could involve frequent doctor visits or other time away from work, though excessive absenteeism may raise the question of being qualified.

Policy should be broad enough to allow for accommodation.


Careful Drafting

As with any policy, draft fastidiously and avoid ambiguity.

Anticipate as many variables as you can and address them in the policy.

Establish clear policies for using PTO, e.g., notice required.

Consider differences between blue collar or lower level work force and executive/managerial/professional workforce. Do you need separate policies?


Model Policy—Introduction

POLICY STATEMENT:Company will offer our Full Time and Part-time with Benefits employees a Paid Time Off Policy (PTO) that combines vacation, sick, and personal holidays into a single bank to be used for planned days off and short term illnesses.

PURPOSE: Company believes that employees should have opportunities to enjoy time away from work to help balance their lives and recognizes that employees have diverse needs for time off from work. Company has established this paid time off (PTO) policy to meet those needs. The policy contains provisions for vacation time, personal holiday, and sick leave. The benefits of PTO are that it promotes a flexible approach to time off.


Model Policy--Procedure1. PTO time is to be used for personal appointments,

vacations, illnesses, religious observances, and personal days.

2. PTO requests for time off must be scheduled in advance according to departmental policy. Department Director or designee must approve all PTO requests and reserve the right to deny requests if they compromise departmental standards.

3. Employees will not be allowed to use PTO time until they have successfully completed their probationary/introductory period of employment. Employees leaving prior to the completion of their probationary/introductory period will not be paid for accrued PTO benefits.


Model Policy--Procedure(2)4. PTO time may be used in one-hour increments.5. PTO used in a pay period will not be used when

calculating eligibility for overtime pay.6. PTO cannot be taken for hours not normally worked.7. Employees must use available PTO when taking off

a normally scheduled day.8. Employees who work less than their regularly

scheduled hours must apply PTO to make up the difference, with the exception of a company required absence due to low workload.

9. Employees may not use PTO to cover a “no call/no show” or disciplinary suspension.


Model Policy--Procedure(3)10. Employees must comply with Company or

departmental call-in procedures. If PTO is available it must be used for unscheduled time off or call-ins for personal illness, family illness, transportation problems, etc. except as prohibited by law while on an approved FMLA leave.

11. Inability to work a scheduled shift will be considered a call-in. PTO will be paid regardless of extra time worked in the pay period.

12. Employees who take frequent unscheduled PTO will be subject to progressive discipline in accordance with Company’s attendance policy.


Model Policy-PTO Accrual

1. PTO rates of accrual are outlined on the employee Benefits Schedules.

2. Employees will begin accruing PTO time on the date of hire.

3. PTO time will accrue on all hours paid up to 80 hours per pay period.

4. The maximum accrual for PTO is 400 hours for full time and part time employees. Once these maximums are reached PTO will not continue to accrue.


Model Policy-PTO Accrual(2)

5. Employees who transfer positions within Company will retain their accumulated PTO balances in the new position. Employees transferring to a non-benefit status will be paid out the balance of PTO hours accumulated at the rate the employee was being paid prior to the status change.

6. Employees will not be allowed to carry a negative PTO balance. Employees are responsible for being aware of their PTO balances, which will continue to be printed on pay stubs.


Model PolicyPayout and Carryover

1. After one year of service, employees may cash in up to a maximum of 80 hours of their unused PTO balance as long as they maintain a minimum of a 40-hour balance.

2. PTO will be paid out at time of termination for those employees who leave in good standing, have completed their probationary/introduction period and have fulfilled their two-week written notice. At least a four-week notice will be required of salaried employees. PTO cannot be used during the notice period unless it was approved prior to giving notice. PTO is not paid out on involuntary termination.


Model PolicyPayout and Carryover

Employees with vacation accrual balances and remaining personal holidays will have their eligible vacation balance converted to their PTO balance. Accrued balances in excess of 400 hours for full time and part time employees will be paid out.


Administering the PTO Policy

To be effective, policy must be properly administered.

Some companies have not monitored PTO, to the chagrin, among others, of their accountants. Might have Sarbanes-Oxley complications.

Give supervisors flexibility to make ad hoc decisions, but provide guidelines.

Hold supervisors accountable. Employee misuse subject to discipline and

discharge. Develop plan for dealing with employees who

exhaust PTO days but still need time off for illness.


Administering Traditional Policy

Give supervisors flexibility to make ad hoc decisions, but provide guidelines.

Hold supervisors accountable. Design plan to hold accountable employees who

abuse. Create incentives


Some Editorial Observations

With changing population, e.g., more employees caring for parents, employees having children later, need to view flexible time off policies as something good for the company, not just an increased expense.

Some empirical data suggests such policies may be as important as compensation.

Consider innovation. One company allows employees to simply take the time they need.

Hold supervisors and employees accountable. There are problems with PTO—one company

recently returned to traditional leave. In my view the ideal is probably some combination of a PTO and traditional leave policy.


Contact Information

KENNETH A. SPRANGWashington, DC (202) 683-4090

FAX: (202) [email protected]

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Paid Time Off