Crafting a Competitive PTO/Vacation Policy

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May 08, 2018

Vacation Policies PTO Programs

As companies look for an edge in attractive employee benefits, many companies are looking back at their PTO/Vacation policy as place to start. While employees dream of summer trips, winter get-aways, BBQ dinners and time with family and friends, business managers and executives are reviewing their vacation policies to see that managers are not completely strapped for personnel, therefore businesses have to review their vacation policies to make sure it's not only competitive but fair to both the employees and the employer. 

Main Types Of PTO/Vacation Policies Plans:

Companies PTO/vacation policies generally fall under one of two categories, including a) set amounts of vacation time or b) unlimited vacation time for employees. These are the 2 main vacation policies that most companies operate under. The following is a description of what each of these types of PTO/vacation policy is based on:

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Set Amounts of Vacation Time:

Companies using this policy set a specific amount of vacation time that employees are allowed to use throughout a given calendar year. Many companies will have a "use it or lose it" policy for employees vacation days. This means that employees can only accumulate so much vacation time before they have to use the vacation time, or they will lose that vacation time. 

Many companies will "tier" their vacation along with service time employees put in with the company. For example, something like the following might be familiar:


  • 0-5 years of service - 2 weeks vacation
  • 5-10 years of service - 3 weeks vacation
  • 10 -15 years of service - 4 weeks vacation
  • 15 - 25 years of service - 5 weeks vacation
  • 25+ years of service - 6 weeks vacation

Companies using this standard method tend to "reward" employees who stay with the company for longer and build seniority by giving them more vacation time. 

Some of these same companies may also offer additional vacation time for holidays, especially major holidays like Thanksgiving, Christmas, New Years, and Easter. Other employees (especially those that work for the local or federal government) will also get off more "minor" holidays such as President's Day, Memorial Day, or Labor Day as additional holidays as well. 

Unlimited Vacation Time For Employees:

While this may sound great to many employees who work for companies that utilize the "set amounts of vacation time" policy, this is not everything that it seems. This is not just the employee's "free pass" to skip work at any given time and go do whatever they want. Far from it.

These types of vacation plans for employees are a newer phenomenon but have been successfully adopted by some employers. The concept of the unlimited vacation time for employees allows employees to determine how much vacation time they need to have. This model, however, does not allow employees to just take off and do what they want without any accountability. 

As this type of vacation model is adopted by some companies, there are some basic rules that must be understood by all employees for this freer, more liberal model to work for the entire company. Employees are expected to be responsible for their vacation time and are still expected to get their work done on time and in a quality manner. They are also expected to be held accountable for when they are present versus absent from work.

This tends to work the best with smaller companies with fewer employees, where everyone is reliable and accountable not only to themselves but also to each other for the amount of time spent at work versus that taken as vacation time.

Which PTO/Vacation Policy Works Best For My Company?

There is not only clear-cut answer to if the "set amount of vacation time" versus the "unlimited vacation time" policy will work best for a given company. However, when determining which policy fits your business better, the following are some things to consider before making that final decision about vacation policies and which items count as PTO/vacation versus other needs that employees will have throughout their time with your company:\


  • Understand What PTO/Vacation Time Is Used For: PTO/Vacation time should allow employees to use their PTO/vacation time for their own discretionary pleasure. This means that most companies should not require employees to use their PTO/Vacation days for things like bereavement leave, disability leave, parental leave, or jury duty. PTO/Vacation time should be used strictly for personal time off and holidays.
  • Providing Employees Sick Time: Most companies following the traditional "set amount of vacation time" models will want to consider providing their employees with some sort of sick time so that PTO/vacation time does not have to be used as sick time. Whether sick time is limited or not will depend on the company and their individual policy, however, most companies will provide employees some sort of sick time off without it affecting their PTO/vacation time.
  • How Much PTO/Vacation Can Be Accrued: Companies should determine how much vacation time employees can accrue before they must begin to use that time off. Some companies will cap it a one year's worth of vacation days while others may allow employees more as they gain tenure and seniority within the company. Determining your policy and making it fair to all employees will be key to ensuring everyone feels though they are treated fairly. 
  • Can Employees Turn In Unused PTO/Vacation For Pay: For those employees who do not use all of their vacation days, is the company going to allow them to turn their vacation days in at the end of each year for a certain pre-determined amount of pay per hour? Is it a true use it or lose it style of vacation time that is provided to employees? Determining this and making it the same for all employees creates a fair PTO/vacation policy for everyone.

Another New Trend Emerging: Making PTO/Vacation All Come From The Same Bank Of Days:

Some companies are moving to the trend of making all PTO/vacation come from the same bank of days. This means that the PTO comes from the same place whether it's used for a doctor's appointment or vacation or to take care of a family member. This often keeps employees from taking advantage of creating a situation to use sick days or other time off as they may feel it is "owed" to them, even if they don't really need the time off. Companies who are choosing to resort to this will often provide extra PTO to their employees so it covers things like medical needs or illnesses without taking away the person's vacation or holiday time off. This policy will only work if companies are sure to include things like bereavement leave, parental leave, family emergencies, doctor's appointments, sicknesses, etc. are accounted for as well as all vacation days and holidays.

These are some of the basics of how a company can help build their own PTO/vacation that is fair to all employees and works for that individual company.

For more information on creating a fair and useful PTO/vacation policy for your employees, please feel free to contact us

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