Paid Time Off Policy and Guides

European countries, like France, Italy, and Germany, usually guarantee between 20 and 30 paid days off per year. But, the USA does not have a national requirement for paid holidays, paid sick days, or vacation days.  Instead of that, companies in the USA rely on creating their own PTO policies. So, what exactly is paid time off?

What is PTO policy?

Paid time off (also known as PTO or personal time off) is actually the time you get paid when you are not working. In other words, paid time off is personal time that employees spend outside the office (and not working) while still receiving a salary. Companies may use this term instead of annual leave, personal leave, sick leave, or other conditions. PTO policy is all paid leave grouped into a predetermined number of days.  That means that the PTO policy allows employees to use the time they need for sick leave, vacation, or other personal needs.

How does PTO work?

To avoid setting a certain number of vacation days, a certain number of sick days, and a certain number of days for other personal needs, employers create a unique PTO policy for each employee.

Traditional leave policies typically give employees 30 paid days off per year – 10 days of paid leave, 8 sick days, 2 personal days, plus 10 paid holidays, while many PTO policies give employees between 15 and 20 days plus holidays celebrated by the company.

What are the types of PTO leave?

There are various reasons why employees would like to take a break from work. It can be a vacation, maternity (paternity), bereavement, sickness, or personal time. Determining what type of time off you will take is easier if there is already a category for it. As an example, a category of maternity leaves, if your country provides 180 days of maternity leave.

What are the common types of PTO/leave?

  • Vacation leave – a certain number of days that employees are allowed to use when they want a few days for holidays or travel
  • Sick leave – a standard type of leave given to employees to use then when they are sick, and sometimes requires Medical Certificate by the organization
  • Maternity / Paternity Leave – leave granted to a woman/man for when they become mother/father
  • Personal leave – leave granted for personal work of employees, such as attending meetings, appointments, and other personal works
  • Study leave – paid leave given to an employee for the purpose of education related to the current job
  • Bereavement leave –leave granted to employees that can be used during periods of grieving, such as the death of a loved one in life

The Pros and Cons of a Paid Time Off Policy – PTO

Advantages

PTO benefits not only the employee but also has great benefits for the employer.

Benefits for employee

  1. Flexibility – PTO provides employees with flexibility, i.e. they can use the time at their own discretion, in order to set a balance between work and private life. In doing so, they do not have to ask for permission.
  2. Improve productivity – PTO will maintain high productivity because it gives employees the opportunity to take a break from work when needed. This will allow them to be less stressed and will result in increased productivity.
  3. Higher morale – PTO ensures that employees feel valuable to the company. They will be focused on the job and will have a more positive attitude towards their job.
  4. Prevent burnout – PTO can help reduce employee burnout.
  5. Reduced unplanned absenteeism – employees can schedule appointments and plan a personal business in advance, as they have the option to take paid time off when they need it. This also benefits employers, as they have increased predictability of resource availability.

Benefits for employers

  1. Lower administrative costs – with PTO i.e. when you combine sick days and vacations, your human resources department will spend less time tracking the time of each employee. You simply have to note whether the employee was in the office that day, the reason for absence is irrelevant.
  2. Lower costs – Unplanned absences can lead to a loss of company revenue. But with PTO, you generally don’t have to think about it.
  3. Employee care – PTO policies indicate to your employees how much you care about their work-life balance and the future of your business.
  4. Planning ahead – since employees can take days off when they need them, there is less risk of unscheduled absences. Employers know what resources are available to them so they can plan and allocate work ahead of time.
  5. Mutual trust – empowering employees to use their time off when and how they want builds mutual trust between the employer and the employee.

Disadvantages

  1. Higher scope of requests – according to the PTO policy, employees may take more days off, which may affect the schedule or staffing needs.
  2. Less leave – some research shows that employers can give employees fewer total days than they had before.
  3. Sickness – Some employees may come to work even though they are ill, in order to save PTO for longer vacations.

Types of PTO policies

There are three major types of PTO policies: bank, accrued, and unlimited.

PTO banks

PTO bank is the most popular of PTO policies because it is quite simple to track and administer. For this type of policy, the company allocates a fixed number of days to the “bank” of employees’ time off, altogether. There is usually no separation of types of leave (sick, vacation, or personal) and an employee can use his time off as and when required. This policy gives employees clarity about the number of days they can take, along with flexibility in the way they use them. Some companies and organizations allow employees to carry over unused leaves from one year to another.

Accrued PTO

Leave is granted to the employee daily, weekly, or monthly. The number of days an employee can avail leave will depend on or be directly proportional to the length of service of the employee in the organization. Also, this policy allows employees to earn time off according to how much they work. For example, if you work 40 hours a week it is the equivalent of five days off.

Unlimited PTO

Unlimited PTO allows employees to take the free time they need without a certain number of assigned days.  This policy is based on a basis of trust between the employer and the employee, and that the company gives free rein to its employees. Unlimited PTO policy means that there is no limit to how many PTO days an employee can take away, as long as the job is done and that this policy is not abused.  This policy has been widely popularized by startups and technology companies that want to gain a competitive advantage in employment and be attractive to job seekers.

How to calculate PTO

Calculating PTO depends on which accrual rate you decide to use. Based on the accrual method you choose, you can calculate how much time employees accrue each pay period.

time tracking accounting

Common PTO accrual rates

Some of the most common accrual methods are:

  1. Yearly
  2. Hours worked
  3. Daily
  4. Weekly, bi-weekly or monthly

1. Yearly

A yearly accrual rate is the easiest rate to calculate.  It is great for full-time employees who have already worked a full year, as well as for long-term employees. From the total amount of hours (which employee received every year), simply subtract the number of hours an employee wants to take off.

If you do not want your employees to wait for the beginning of a new year to begin accruing paid time off, you can apply some of the following methods.

2. Hours worked

This accrual rate is perfect for part-time employees or hourly employees.  Their time off directly depends on the number of hours they worked.

3. Daily

The requirement for the daily accrual rate is that the employees work full eight-hour shifts. It is ideal for part-time employees if they meet the previous condition.

4. Weekly, bi-weekly or monthly

The weekly accrual rate is the best rate for employees whose work hours vary. A bi-weekly accrual rate is just as easy as it is for a weekly pay cycle — it’s just the payment period lasts two weeks instead of one. If employees are paid monthly, divide the total number of hours they earn per year by 12 months per year.

Facts about PTO per country

Annual leave, or annual vacation, varies greatly from country to country. While some of them give a minimum of a few days, others have established generous vacation policies that grant employees almost a month of annual leave.

USA

U.S. federal law does not provide for paid vacation. Most companies grant between one and three weeks of paid annual leave.

Sweden

In Sweden, employees get five weeks of annual leave, i.e. 25 paid vacation days. During the holiday period from June to August, at least four weeks of annual leave must be granted

India

In India, employees are entitled to 15 paid vacation days per year. The exception is factory workers, who are entitled to 19 days a year.

Australia

Full-time employees are entitled to four weeks of paid annual leave. Shift employees are usually entitled to five weeks of paid annual leave. Unused leave can be accumulated and later used or redeemed.

Brazil

After a year of employment at a job, employees in Brazil are entitled to 30 days of paid leave each year. In addition, employees are granted annual leave compensation equal to one third of their monthly salary.

Russia

In Russia, employees are entitled to an annual paid annual leave of at least 28 calendar days per year of work

UK

According to the Gov.uk, in England, Scotland, Wales, and Northern Ireland, employees are entitled to 5.6 weeks (about 28 days) of annual leave. Employers have the option to determine when vacations can be taken, but if holidays are not used, employers must pay for days not taken.

France

In France, employees receive five weeks of paid leave per year, and they are entitled to paid leave after a month of work. Paid annual leave accumulates only on weekdays. Collective agreements may even provide for additional days off.

Spain

In Spain, annual leave is determined by contract and must last at least 30 days. The vacation schedule is agreed upon between the employer and the employee. Paid vacation days cannot be replaced with financial compensation.

Germany

The minimum number of days off in Germany is 24, but most employees have contracts that provide for 30 days of paid annual leave. Additional leave may be provided to employees who perform intensive or dangerous work.

Italy

The legal minimum for annual leave is 20 days per year. Additional days off can be given to employees depending on the length of service of employees.

Serbia

In Serbia, the minimum duration of annual leave is 20 days. This minimum may be increased on the basis of different criteria, such as working conditions, work experience, education of the employee.

Belgium

Employees in Belgium receive 20 paid days off, although collective agreements may provide for additional days off.

Netherlands

Employees in the Netherlands receive a minimum of 20 paid annual leave per year. However, there are many collective agreements that provide for extended annual leave of up to 32 days.

Poland

In Poland, employees with less than ten years of service receive 20 paid days off, and employees with more than ten years of service are entitled to 26 days.

Wrapping it up

Paid leave is a key piece of any healthy, productive, and attractive workplace.

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