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Time Off Programs: Separate Categories for Paid Sick & Vacation Leave or a Single PTO Bank?

The U.S. federal government does not mandate that employers offer either Paid Time Off or paid sick leave. “The United States is the only advanced economy in the world that does not guarantee its workers paid vacation days and paid holidays,” says John Schmitt, Vice President of the Economic Policy Institute, in a report for the Center for Economic and Policy Research.

Nevertheless, many employers do opt to offer some form of time off program as an employee benefit to attract and retain top talent. The employers who do this have a couple of options: they can split out paid sick and vacation leave into distinct categories; or they can offer a single, unified bank of Paid Time Off (PTO) that can be used for either sick or vacation time, at the employee’s discretion. Which is the better option?

Should you offer PTO?

PTO increases flexibility for employees and is easier for employers to administer. As a result, PTO can reduce absenteeism and improve morale, while still providing the recruitment and retention benefits of having a paid leave policy. With PTO, healthier employees don’t necessarily feel penalized when compared to employees who take more sick time. Plus, sick leave policies often require a doctor’s note, whereas PTO gives employees the flexibility to take time off for mild but still contagious illness without necessarily having to go to the doctor.

Should you offer paid sick leave?

Illness in the workplace decreases productivity overall, and employers are better served by discouraging sick employees from coming into work. Sick employees, nevertheless, sometimes come in to work anyways. This is called presenteeism, and a dedicated sick leave program can make it easier for employees to stay home when they might be infectious. It also ensures sicker employees don’t feel penalized by the appearance of losing vacation days. Note that, while the federal government does not mandate either paid sick or paid vacation days, some states – including Vermont, Connecticut, California, Massachusetts, and Oregon – and some municipal governments do.

What needs to be considered?

First, in setting any kind of leave program, employers need to ask some important questions. How does leave time accrue – hours worked, years with the company, or some other system?  Will leave time rollover into the next year? There are also regulatory concerns. Though the federal government does not mandate either paid vacation or paid sick leave specifically, some regulations still affect time off. For example, the Family and Medical Leave Act (FMLA) mandates that employers offer up to 12 weeks leave in certain situations – though FMLA leave does not have to be paid.

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