Giving your employees paid time off (PTO) is essential to the well-being of your company. Having a clear-cut break from work boosts mental health, reduces the risk of developing heart disease, and increases productivity. Who wouldn’t want that for their employees?
Once you decide to provide PTO as part of your employee benefits package, it’s time to look at the various PTO reset options. If you decide not to give employees unlimited PTO or PTO that accrues over the course of the year, your other choice is a lump-sum PTO model. In this model, your employees will receive all of their yearly PTO days on a certain date. After a set amount of time, the PTO will reset.
The three most common PTO reset options are company-wide resets, anniversary resets, and PTO that carries over. Let’s take a look at the pros and cons of these PTO reset options. We’ll also cover other choices you have when it comes to building the perfect PTO policy for your company.
Lump-Sum Reset Options
A lump-sum PTO policy means that each of your employees gets all of their PTO days on a set date. After a year, the PTO resets. When a reset happens on the same day for everyone in your company, it’s called a company-wide reset.
An anniversary reset policy, on the other hand, means everyone’s PTO resets on each person’s individual hiring anniversary.
And then there’s PTO that doesn’t reset at all.
Let’s look at each PTO reset option in greater detail.
Since they allow all of your employees to receive a fresh round of PTO on the exact same day, company-wide resets can be easier for employers to keep track of. This is especially true when an employer has hundreds or thousands of employees. Instead of juggling hundreds (or thousands!) of anniversary dates, your HR department only needs to worry about one significant date.
All they have to do is give everyone in the company a lump sum of PTO on a certain day and track how much PTO each employee takes before the date comes again.
So if you pick a PTO reset day of January 1, all of your employees will receive a new round of PTO days on that day. What happens to their leftover PTO from the previous year is up to you.
Some employers have use-it-or-lose-it policies that compel employees to use all of their PTO or risk losing it on the annual reset date. Others allow some or all of the PTO to carry over into the next year on the reset date.
Things can get tricky when you hire employees mid-year, however. Let’s say you give your employees 10 days of PTO on January 1 of each year. Then you hire a new employee on September 1 of that year. Giving this new employee 10 days of PTO doesn’t make sense with a lump-sum system. But it also wouldn’t be fair to give them no PTO at all.
So instead, you prorate the PTO. Which means doing a bit of math.
Thankfully, the formula isn’t too difficult. It takes just three steps to figure out how much PTO to give any new hire.
- Calculate how many days of employment remain for the year, including weekends and holidays
- Divide the days of employment by the days in a typical calendar year
- Multiply the number you get by the accrual rate for your company
Let’s test this formula with the hypothetical September 1 hire. Each employee receives 10 days for every 365 days they are employed with your company. The new employee will be employed September (30 days), October (31 days), November (30 days), and December (31 days).
To add it up, you’ll calculate 30 + 31 + 30 + 31 = 122.
Now let’s divide 122 by 365. We get 0.334.
We’ll now multiply this number by the accrual rate, which is 10 (for the 10 PTO days an employee gets every 365 days).
The resulting number, 3.34 days, is how many PTO days you’ll give your new employee for the remainder of the year.
Once the annual company-wide reset day hits, that employee will get 10 new days like everyone else.
Of course, keeping track of PTO for all of your mid-year hires can get confusing. But many companies prefer it over staying on top of individual anniversary days for each employee. This model is also easier if you allow employees to carry their unused PTO into a new year or receive a payout for any unused PTO. And in some states, you’re required to do this.
Overall, here are the pros and cons of company-wide resets:
- Keeping track of one company-wide PTO reset date makes it easy to for you to let unused PTO carry over or be paid out on the reset date
- You can easily keep tabs on how much PTO everyone has used
- Company-wide resets are common, which means your employees may be familiar with the model before you hire them
- Hiring new employees mid-year can be a mathematical headache
- If everyone has the same PTO calendar, they all might try to take time off as the reset date approaches, causing chaos in the workplace
- If you give employees an increase in PTO every two years, you’ll have to prorate their additional PTO on their hire date if it doesn’t fall on the same date as the company-wide PTO reset
Anniversary resets mean that instead each employee’s PTO resets annually on that employee’s date of hire or start date. This can work well for smaller companies. Let’s say you have 15 employees. Each one was hired on a different day of the year. Each employee receives 10 days of PTO on the anniversary of their hire date.
That’s only 15 dates to keep track of, and you won’t have to do any math to prorate PTO if an employee comes in mid-year.
But if you want to give your employees the chance to carry their PTO over each anniversary or you set accrual caps, you’ll find yourself doing a lot of math to track how much PTO your employees have at any given time.
PTO tracking software can help with this, however, so if you really want to do anniversary resets, you can. And if you want to provide a PTO increase of five days for every three years of service, this is much easier to do with an anniversary reset policy than a company-wide policy.
For example, if an employee hits the three-year mark in the middle of the year, you can give them their lump sum of PTO days for the entire year, including the raise. With a company-wide model, you’d have to prorate those additional days based on how many days are left in the year or make the employee wait until the reset date to get their extra days.
This can cause frustration for an employee if their hiring date is February 1 and they must wait a whole year to get those extra five days of PTO.
Let’s break down the pros and cons of anniversary resets:
- They make it easy for you to increase PTO as an employee accumulates years of service
- They’re ideal for smaller companies with fewer employees to keep track of
- Your employees won’t feel the need to jostle for end-of-the-year PTO since everyone is on a unique PTO calendar
- Anniversary resets can be a headache if you have lots of employees with dozens, hundreds, or even thousands of different start dates
- If you offer—or are required by law to offer—yearly payouts or rollovers for unused PTO, you’ll be making those payments all year long instead of on one set date for everyone in the company, which can get overwhelming very quickly
PTO Systems Without Resets
Some PTO systems like accrual or unlimited PTO don’t reset at all.
With an accrual system, PTO accrues throughout the year based on hours worked. For example, you might give each employee 4 hours of PTO for each 2-week pay period they work. A biweekly pay schedule means 26 pay periods for a total of 13 days a year.
Since this system continues throughout the year, you won’t need to figure out a reset date. The PTO can accrue indefinitely if you let it, but many employers set caps on how much time can accrue before the PTO is paid out.
This helps employers avoid having to pay out an enormous sum to employees who accrue their PTO for years or decades.
There’s also unlimited PTO, which means there’s no reset date because your employees get as much PTO as they want—or don’t want. We have some really mixed feelings about unlimited PTO, which you can read all about in our guide to the pros and cons of an unlimited PTO policy.
How to Choose Which Reset Options Are Best for You
The first thing to do is choose which PTO system you want as a whole. If you pick unlimited PTO, you won’t have to bother with resets at all. With an accrual system, you’ll just need to figure out how many hours to provide your employees during each pay period—or whatever benchmark of time works best for you.
If you decide to go with a lump-sum PTO system, determine if you want to reset your PTO at all. Some companies have use-it-or-lose-it policies where the unused PTO expires after the yearly reset date.
While this is legal in some states, it’s not allowed in others—and honestly, we don’t love use-it-or-lose-it policies. Employers seem to get a big benefit if employees don’t use all their PTO days. They don’t have to deal with employees being gone from work as often. And they also get to avoid paying out those unused PTO days.
It seems like a win, right?
But employees may begin to resent the missed benefit of PTO when they don’t take all their days and aren’t paid for the ones they don’t use.
No matter which type of lump-sum PTO plan you choose, we recommend getting legal advice to help you build a PTO policy that follows your state laws and benefits both you and your employees.