Adding a PTO rollover to your existing policy may at first seem like a great idea. After all, it’s a generous and flexible benefit that many companies employ. However, there are downsides to consider before you jump in and implement a vacation carryover policy.
Consider the fact that 70% of workers would rather earn more money than take time off, for example. This could mean a PTO rollover isn’t going to bring the increased levels of employee satisfaction you hoped as, in reality, your employees would simply rather have a raise. Or perhaps they won’t take the rest they need on a regular basis in order to bank their PTO days and get a big payout when they leave the company. It’s less than ideal.
With this in mind, I’m here to guide you on the ins and outs of PTO rollovers, how to do it the right way if you decide to add such a system, plus how to avoid it entirely which is my preferred choice.
How PTO Rollover Works
If you decide to offer a PTO rollover plan, it’ll be part of a lump sum PTO policy. To give you a quick reminder, this is when employees are allotted a certain number of PTO days, usually per year, as opposed to accruing PTO as they work.
Under a lump sum policy, employees’ PTO days reset on a given date which differs from company to company. Some use December 31st, aka the end of the calendar year, others the end of each pay period, or on the employee’s annual work anniversary.
At this time, a few things may occur. Employees may receive a PTO payout – they’ll receive the wages equivalent to their unused days. Or the PTO days expire at the reset date if the company has a so-called use it or lose it policy. Though, the latter isn’t good practice in my opinion and is illegal in some states.
The alternative is a PTO rollover policy in which any unused PTO is carried over into the following designated period. Employees can use it on top of that period’s allotted PTO days.
When the rollover is unlimited, employees may take all of their unused vacation into the next period. If the company has a limited PTO rollover plan, however, they place a cap on the number of days or hours that may be carried over.
The specifics of how the PTO rollover policy works are up to the organization to decide. The University of Indiana, for example, allows employees to carry over 136 PTO hours but only into a sick leave account, rather than a general PTO allowance that applies to all types of paid leave.
The Pros and Cons of PTO Rollover
PTO rollover is extremely popular as approximately 77% of companies offer it. But all that glitters is not gold.
Though I’m personally not a fan of adding a vacation carryover plan, I will admit there are pros and cons as with any HR policy. You need to be aware of both to make the right decision for your company.
Pros
- Employees appreciate this benefit – PTO rollover is seen by employees as a generous benefit leading to increased employee satisfaction. Naturally, there’s greater employee retention and acquisition when you’re seen as a benevolent employer. Employee satisfaction also improves morale and productivity.
- There’s no mad dash to use PTO by a certain date – When PTO resets on a given date, employees may rush to take their vacation time before they lose it. When it resets at the end of the calendar year, people tend to save it to use around the holidays. In both instances, you risk being understaffed which has a knock-on effect on the company.
- It provides flexibility and accounts for personal circumstances – I’m a firm believer in flexible and personalized benefits. Everybody has different circumstances in life. To give just one example, an employee may not need the PTO hours one pay period but then get sick the following period and will appreciate having the extra days they’ve saved up and carried over.
As long as it’s used correctly, PTO rollover seems to be one of the fairest options. But therein lies the problem, it isn’t always used correctly.
Cons
- You run the risk of employees hoarding PTO days – Employees that save their vacation for a later date won’t get the rest they need on a regular basis and are more likely to burn out. This of course leads to unplanned absences, lower productivity, and unhappy employees.
- It can interfere with day-to-day operations – There’s a risk employees will take their carried-over PTO plus allotted PTO in a long continuous chunk. When you have lengthy absences of course it affects the company negatively. Others may feel overworked trying to pick up the slack, you may need to hire temp staff, and you may not reach important deadlines. There’s the potential for too many complications.
- It’s an administrative burden on the HR department – A PTO reset is simple compared to a PTO rollover. Vacation carryover takes time and effort to calculate and track. Naturally, individual employees will have saved different amounts of PTO by the end of the designated period and that means a ton of paperwork for you. Plus, the potential for human error surrounding a benefit that’s so important to employees may cause issues.
Advice on Implementing PTO Rollovers
Though it’s not our policy at Stone Press, you may decide adding a PTO rollover is the right choice for your company. There’s a right way to do PTO rollovers to ensure your company isn’t negatively impacted.
Ensure Compliance
Bear in mind that state laws may impact how you handle unused vacation time. In some states, a use it or lose it policy is illegal. Therefore, many companies simply use a payout when PTO resets to avoid legal issues. Similarly, a payout for unused PTO upon termination may be required by law.
The laws on this kind of thing are complex and differ from state to state. For instance, legal requirements may only apply to certain types of employees but not others, e.g., depending on whether they get paid a salary or hourly. Make sure you research the legal obligations in the state you operate carefully as failure to comply could result in fines.
Apply a Cap
Putting a limit on the amount of PTO an employee may rollover from one period to the next, lessens the likelihood of them hoarding PTO over long periods of time and taking it in big chunks. This way, employees still feel they’re receiving a generous benefit if, for whatever reason, they don’t take all of their allotted days in one period.
The average cap companies place on PTO rollovers is 19 days. But, I believe that at almost four working weeks this cap is way too high. Set your limit lower at five to ten days.
Make this cap clear by ensuring employees are aware of it and writing it into policy. Most issues with disgruntled employees stem from a lack of transparency or understanding of a particular HR policy. For instance, an employee may think they’re entitled to more vacation carryover than they really are and lose it at the end of the calendar year by mistake which would be frustrating.
You may also wish to add to the policy that employees should take their rollover days within the next calendar year or pay period. That way you don’t run the risk of having to make a large payout of unused PTO if an employee resigns or is terminated.
Ultimately, you should do PTO rollovers in a way that makes sense for your company logistically and the company culture. Perhaps you allow PTO rollover but they must be used by employees as ‘wellness’ days for example.
Use This PTO Rollover Example
Make HR policies around valued benefits such as PTO clear and transparent. Follow this example to add a PTO rollover clause to your existing policy:
A salaried or exempt employee may carry over up to 10 days’ paid time off into the following calendar year. This PTO must be taken by December 31st of the new calendar year. Failure to take rolled-over PTO in this time period will result in its expiry. Salaried or exempt employee will not receive a payout in lieu of PTO unless the employee resigns, retires, or is terminated.
Note that this example states precisely who the policy applies to. The cap is clear. It uses specific instructions as to when the PTO should be taken. It directly mentions that there will be no PTO payout in place of taking time off. All of these elements leave no room for confusion among employees.
Encourage Employees to Take Their PTO
Employees may not take their time off as they want to prove their loyalty to the company, they’re scared of falling behind with work, or other reasons. But, this doesn’t actually help anybody. In fact, 70% of employees who report high stress levels work during their time off and one in five go to work while they’re sick.
I’ve found that PTO boosts team morale, increases employee satisfaction, and improves performance. For this reason, you should encourage employees to use their PTO in regular increments even if you offer a PTO rollover plan.
You may wish to track employee PTO over the year and send out a memo to those who are yet to use theirs. They may simply not realize how much time they have left so a reminder can help.
Another strategy is to create a company culture in which time off is valued and encouraged. For instance, use email bulletins to mention the importance of wellness and the role vacation time plays in wellness. Furthermore, encourage management to approve more time off, accounting for it in advance so that it doesn’t impact operations.
Track PTO Carryover Efficiently
Given that employees may be entitled to different amounts of PTO and may have banked different amounts, keeping track of what rolls over for whom is notoriously difficult for HR. If errors are made and employees don’t receive the right amount of carried-over time you’ll have to deal with disgruntled employees.
If you don’t want to bother with masses of spreadsheets, try PTO tracking, time clock, or a similar type of HR software. Most platforms are highly customizable meaning you may add a rollover to employee accounts and enter a cap. The system will automatically roll over the correct amount of PTO for you. Both you and the employee can go in and check their PTO balance at any time.
How to Avoid PTO Rollovers Entirely
Frankly, I hate PTO rollovers as they’re far too much work to manage. But the issue is you still want your employees to see your PTO policy and wider benefits program in a positive light. You want to be seen as a generous and caring employer and most of all you don’t want to face employee discontent or even a backlash over a policy that doesn’t appear to go far enough.
The simple solution is to use an accrual system for PTO. Employees accumulate PTO over time based on the hours they’ve worked and how long they’ve spent at your company. With this system, employees are always earning PTO and there are no rigid set dates around it. Therefore, there’s no reset date and no PTO rollover necessary.
Another benefit of implementing a PTO accrual policy is it rewards, and therefore encourages, employee loyalty. Staff are less likely to leave a company where they’ve earned a great benefit to go back to square one.
Plus, accrual is seen as the flexible, modern way to do PTO. Most companies allow employees to earn and take accrued PTO hours as they please. So, all in all, you’re able to remove PTO rollovers from the equation and still offer a generous PTO policy that makes employees happy.
