It’s summer and employers are deep into the peak vacation season — a time when they may be wondering if they’re handling time off in the best way.

The paid time off (PTO) system has gained popularity in recent years although a 2010 survey by WorldatWork, a group focusing on human resources issues, found that the traditional system that divides time off into sick time, vacation time, personal days, and sometimes other categories was still more common than PTO.

PTO seems to be on the march, though. Its popularity rose substantially between the organization’s first survey on the topic in 2002 and the 2010 survey.

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How to make the switch
Aliza Herzberg, a partner in the New York office of Olshan Grundman Frome Rosenzweig & Wolosky LLP, spoke to the issue in a national webinar for human resources professionals last September. She presented a list of issues that PTO plans should include:

• An explanation of what PTO is. To reduce the possibility of confusion, the plan should spell out how the employer defines PTO.
• A PTO accrual schedule. The policy should spell out how time is accrued and when it can be taken.
• An explanation of how a probation period is handled. Employers starting new employees on probation need to include how it works with PTO. For example, some employers allow employees to accrue PTO during the probation period but not take it until after probation is completed.
• A list of paid company holidays. This list will help employees plan their time off.
• The mechanism for reporting absences. Employees need to understand their responsibility for calling in when they’re absent.
• A method of tracking PTO. Employers need to decide how they will track and report time off. Employees — even those classified as exempt — can be required to submit a form reporting their time off. “While you can’t have an exempt employee punch a time clock, you can certainly require an exempt employee to turn in an attendance sheet on a weekly or monthly basis,” Herzberg said. It shouldn’t say what hours are worked, though.
  Also, no one should be left out of the tracking system, Herzberg said. Sometimes the most senior people in the company frequently travel for business and no one tracks what’s business travel, PTO, vacation, or sick time. That causes a problem when determining what payment is owed on termination and whether time off carries over to another year. “So I would encourage you — even at the top ranks — to figure out a mechanism . . . to track time off.”
• A method for resolving conflict when two employees want PTO at the same time. Employees need to know how such decisions are handled.
• The prior notification period for scheduled PTO. Herzberg said it may be helpful to distribute a calendar at the beginning of the year for employees to plot out their planned absences and report them as soon as possible.
• Carryover policy. The policy needs to specify how unused time will or won’t carry over to the next year.
• Explanation of how payment upon termination will be handled. Herzberg says it’s important to check state laws to see when employers are obligated to pay for accrued but unused leave.

Pros and cons
Employers considering a switch to PTO need to examine how the system might work in their organization. One advantage Herzberg noted is that PTO is easier to manage and administer. HR doesn’t have to track whether an employee is taking a day for vacation or some other purpose.

PTO also gives employees greater flexibility since many traditional sick leave policies are so narrow that they allow time off for the employee’s illness only. With PTO, an employee can use accrued time off to care for a friend or family member’s illness or for some other purpose.

Another important advantage is that PTO encourages employee honesty and can even reduce absenteeism. “The hope is that it encourages employee honesty so that an employee who would have called in sick because they wanted to take a vacation day but didn’t have any vacation days left will actually be honest and just schedule a vacation day in advance and not feel that they have to call in sick,” Herzberg said.

PTO isn’t without its disadvantages. Herzberg said some employers fear a PTO system will lead to “presenteeism” in which employees come to work sick so they can save their PTO time for vacation. To reduce the likelihood of presenteeism, an employer needs a culture that encourages employees to stay home when ill. That lessens the desire on the part of an employee to come in sick.

“It is important to understand that a PTO policy alone without some attendant cultural messages is not enough,” Herzberg said. “You need to have those cultural messages out there. You need to teach the employees what the point of all this is, and part of it is that we’re expecting the employees to choose when they take off and when they do not take off. But we’re also expecting them to recognize when they can’t safely come into the office.”