PTO vs Sick and Vacation Policies

Many employers choose to create PTO policies and it works well for them. However, to determine if it is a good fit for your company, let us explore the policy and pitfalls.

First off, PTO is a term that is used to define a policy that allows time off for any reason, including vacation and sick…it is a combined vacation and sick leave policy. At first glance this seems easy to set up and move forward. However, when combined, the policy must still respect all the nuisances of both sick and vacation rules.

Here is a quick breakdown.

Vacation Time

Vacation time is a vested benefit which means it is a benefit that belongs to the employee, can't be taken away, and any balances must be paid out at termination. Vacation policy allows a company to set waiting periods before accrual begins and when an employee may use it. The company can choose to offer a vacation policy or choose not to offer one at all. In addition, the employer can set the amount of vacation per year that the employee may earn and the accrual periods (weekly, biweekly, per hour).

Sick Leave

Paid sick leave is an unvested benefit that can be subject to “use it or lose it” policies, however, with the accrual option, a portion of unused sick leave rolls over to the next year. California's Labor Commissioner states a time-off benefit that is “contingent upon the happening of a specific event”. This means that it is specifically used for time out sick. Sick leave does not need to be paid out at termination.

Paid sick leave is mandated by the State of California and all employees must have 3 days (as defined by the employee's normal shift) or 24 hours of sick leave available to use for specific circumstances due to illness or taking care of someone who is ill.  The company does not have a choice to offer or not offer sick leave. A company cannot set waiting periods before accrual begins. Sick days can be set up to accrue or as a given as lump sum, but employees must be able to take accrued leave by the 90th day of employment.

In addition, when employees use their paid sick time, they are protected from retaliation, or any form of disciplinary action for exercising their use of paid sick leave. You can deal with attendance issues once they have used their required annual leave amount.

Paid Time off (PTO)

What happens when Vacation and Sick combine into a PTO policy? The two policies combine to include the best (and worst) of both policies into one.

• Like a vacation policy, the paid time becomes an accrued and vested benefit that must be paid out at termination if any accrued balances remain.
• Just like sick paid sick leave, the time must begin accruing from the hire date although you can still not allow the employee to use it during the first 90 days. But the employee can't be made to wait longer than 90 days before they are able to use their sick days.
• And as with sick leave, the employee is protected from retaliation or any form of disciplinary action for using the paid time off. By combining the two leaves, the vacation portion of the leave is now subject to the same restrictions as sick leave. This could be considered a drawback when you're dealing with excessive absenteeism.

Whether you decide to use a Sick/Vacation policy or PTO policy, much consideration should go into the decision and all factors need to be considered. Infinium can help you determine if this policy is a good fit for your company.