A good PTO policy has to achieve a lot. It must be compliant, make employees happy, fit the company, work efficiently, and more. For this reason, handling paid time off for hourly employees is a complex task.
At the same time, it’s a vital task as PTO is a highly-valued benefit. Do it right and you get employee satisfaction and all the good stuff that comes with it like productivity and loyalty. But get it wrong and you could face a mutiny.
Here you’ll learn how to formulate and document a good PTO policy, how to monitor it effectively, and basically, everything you need to know to do PTO for hourly employees well.
1. Comply with Federal and State Requirements
There are federal and state laws that govern some aspects of PTO for hourly employees. Know the rules and adhere to them or your company may face fines.
Here’s a breakdown of the relevant federal laws:
- The Fair Labor Standards Act (FLSA) doesn’t apply here. It doesn’t mandate payment for any form of PTO including sick leave, vacation, and national holidays.
- The Family and Medical Leave Act (FMLA) says employees are entitled to unpaid leave in certain circumstances such as maternity/paternity leave and their jobs will be protected.
- The Americans with Disability Act (ADA) also provides leave rights to those with a physical or mental impairment. The amount of leave given is judged on a case-by-case basis. Employers are required to grant leave as long as it won’t “cause undue hardship” to the company.
Here’s what you need to know when it comes to state law:
- 14 states and Washington D.C have paid sick leave laws. The amount of paid sick leave earned differs from state to state, e.g., employees in Arizona and California earn one hour of paid sick leave for every 30 hours worked.
- In Maine and Nevada, the aforementioned paid leave may be used in other circumstances aside from sickness.
- State law governs some logistic aspects of PTO including whether employers are allowed to adopt a use it or lose it policy and whether they must provide payouts for unused PTO.
2. Determine the Type of PTO
There are different ways to structure your PTO policy, each of which has its pros and cons.
The more traditional leave format gives employees paid time off in different categories. They have a set number of days for different types of leave, usually a separate set number of days for vacation, sick leave, and personal days.
However, I wouldn’t recommend this type of PTO structure as it isn’t user-friendly or easy to keep track of when you have multiple employees with multiple figures in different categories.
Offering combined PTO, or a PTO bank, is better as it’s much more flexible for employees. It means that all types of leave are put together in one bank and employees may choose how they use that leave.
It’s up to you to decide whether this combined PTO should be allotted or accrued.
Allotted PTO, or lump sum PTO, is when employees are given a set number of days off, usually annually or each pay period. Accrued PTO on the other hand is earned by employees according to the number of hours they work and, often, how long they’ve spent at the company.
Allotted PTO tends to be easier to manage and track, making it less of a burden on you in HR and others responsible for administering PTO. It’s also a good incentive for new employees joining a company as they’re able to take their leave right away without the need to work a set amount of time beforehand.
PTO accrual also has its benefits, particularly in the long term. When employees earn more PTO the longer they work at a company, it increases employee loyalty. They’re less likely to leave and lose an excellent benefit that they’ve earned.
Furthermore, HR tracking software means that it’s just as easy to calculate and monitor accrued PTO these days, as much of the work is automated and completed for you. This makes accrued PTO a viable option for companies of all sizes.
All in all, every company has unique policies, a unique structure and culture, plus a unique set of goals. Thus, choosing between allotted and accrued PTO should be done on a company-by-company basis.
3. Document Your PTO Policy in the Employee Handbook
It’s vital you have written guidelines on PTO available to all staff. It communicates to employees what they’re entitled to, how to attain it, and what procedures to follow. If the policy is clear and transparent, there’s no room for disputes or employee grievances at a later time.
When you write the policy, first provide a succinct summary of the most important aspects. Then go into the finer points in as much detail as you need. Some employees will be keen to understand the specifics, plus they may have individual circumstances that don’t apply to most other employees and aren’t covered in the general summary.
Ensure the written policy is easy for every member of staff to understand. The best way to do this is to write clearly and explicitly, be thorough and explanatory, and use simple, jargon-free language.
Your documented PTO policy should include information on the following:
- The types of leave available and whether they’re paid and/or job-protected
- How policies differ for different job types such as salaried vs. hourly employees
- What medical leave, parental leave, bereavement leave, and compassionate leave may be used for, and who it applies to
- Provisions for other types of leave such as jury duty and military service
- Defined rates of accrual or allotted PTO rates – whichever applies
- How employees should apply for PTO and what the approval process involves
- What happens to unused PTO, i.e. whether there’s a payout or it rolls over
- How PTO fits into their benefits package and whether it has an impact on other payroll aspects such as overtime pay
Pay special attention to the other types of PTO you may offer as part of your PTO policy outside of sickness, vacation, and holidays. Paid bereavement leave, for instance, is generally considered inadequate across the US, with most companies only offering one to three days of paid leave for the loss of an immediate family member.
If able to do so, you should write a more generous and flexible policy for such types of leave into policy. This will not only help you attract and retain more qualified employees but also generate a positive perception around your business as a whole.
4. Set Some Limitations
As PTO is so beneficial, it’s important to offer a generous and flexible policy. Nevertheless, you must be aware that some employees may use the system in a way that negatively impacts the company.
For instance, if you allow PTO rollover into the next year, an employee may save their accrued days over time with the intention of taking their leave in one large continuous period. If somebody, or even multiple employees, are gone for a lengthy period, it may impact day-to-day operations.
To remedy this issue, plan effectively for PTO and write some limitations into your PTO policy. For instance, you may allow PTO rollover but place a cap on the number of PTO days an employee can take into the following year.
There are going to be issues with any PTO policy. Ideally, you’d anticipate issues before they arise and make solutions to them part of the policy. Either way, you should audit and improve your PTO policy regularly.
5. Calculate Hourly Employee PTO Fairly
Calculate PTO by the hour. This method makes sense for most companies that work with hourly employees. Staff may work irregular shift patterns and you may have a mix of part-timers and full-timers so this method keeps it simple and fair for everybody. Every employee earns PTO for the hours they’ve worked.
Using the annual average of 10 PTO days per year in the US, the hourly PTO accrual rate is calculated like so:
40 hours (work week) x 52 weeks = 2080 hours worked in the calendar year
10 PTO days x 8 hours (work day) = 80 PTO hours
2080 – 80 = 2000 hours (no. of hours actually worked)
40 hours (work week) ÷ 2000 = 0.02
This means that all employees receive 0.02 hours of PTO for every hour they work. PTO for a part-time associate who worked 20 hours in a week would be at the same rate, but keep in mind they will have only earned five PTO days.
The reality is, HR software would do these calculations for you automatically. All you’d need to do is input employee timesheets or integrate a clock-in system and set an accrual rate. Both you and the employee will be able to see their PTO balance in real-time on the program’s dashboard.
6. Encourage Employees to Use Their PTO
In 2022, 55% of PTO for American employees was unused. Employees may not take their PTO for a number of reasons. First, there may be scheduling issues in the workplace. Or they may not understand the procedures and policy properly.
Furthermore, they may feel guilty about taking time off and neglecting their responsibilities at work. Or that their position within the company and perception among management may be negatively impacted if they were to take PTO.
These issues can and should be remedied by you in HR alongside company leadership. The reason is PTO is beneficial to both employees and the company at large.
When employees take PTO they’re more likely to have job satisfaction and therefore work more productively. They’re less likely to suffer burnout and be absent or forced to take time off at inconvenient times.
Furthermore, PTO is important for a positive work-life balance. You’re more likely to retain employees with an easy-to-understand and easy-to-use PTO policy. New candidates will seek this out too. A complex, nominal PTO policy is likely to put qualified employees off.
As an HR pro, you can encourage employees to take PTO by promoting a culture in which staff are cared for, supported, and actively encouraged to have a healthy work-life balance.
Ensure staff understand exactly what PTO they’re entitled to, how much they’ve accrued, and how much they have left. Make it easy for employees to view and understand their balances within the HR system or portal. You may even wish to send out reminders to employees who have unused PTO.
Moreover, make the PTO application process simple with tweaks such as moving it online, eliminating forms, offering a quick turnaround on the response, and encouraging management to approve more time off.
7. Review Your PTO Policy Regularly
Workplace attitudes and what’s considered a good and fair set of benefits for hourly employees may change. The position of the company, branding, goals, and culture may change over time too.
To keep employees happy while looking out for the company’s best interests, you must regularly audit HR policies. Auditing the PTO policy is particularly important as it has such an impact on morale, budget, and operations.
Create a list of important criteria you’ll use to measure the success of your PTO policy. For example, you may include up-to-date legal compliance, employee satisfaction, and efficiency.
To assess aspects like these you’ll need to gather data and analyze key performance indicators. For instance, an increase in employee turnover may be a result of a lackluster PTO program.
Or you may survey employees to discover the number of associates using their time off and why or why not. Perhaps you find they don’t understand the policy as it’s too complex. Then you’ll be able to make positive changes.
Bear in mind that you should do everything in your power to avoid making PTO cuts. It’ll lead to widespread discontent. So if you do make changes to PTO policy, ensure they’re sustainable, meaning you won’t have to retract them and face repercussions in the future.