The Importance of the Right Paid Time off Strategy

As employers compete for talent and navigate evolving employee expectations, paid time off has become a more complex — and more strategic — part of the total compensation conversation. While there is no federal requirement for paid time off, decisions around how much to offer, how it’s structured, and how it aligns with company culture can have a significant impact on recruitment, retention, and operations.

In this January Workplace Update, Paige McAllister of The Workplace Advisors explores how employers can think through paid time off beyond a one-size-fits-all approach, outlining the key factors — from culture and compliance to industry norms and operational realities — that should shape a company’s PTO philosophy.

Clients ask me all of the time, “How much paid time off should we offer?” My answer is always “It depends.” In reality, there is not one right answer or formula for how much paid time off a company should offer as so many factors must be considered. The days of the standard two weeks off every year does not work for most employees and therefore it does not work for most companies.

When deciding to apply to or stay at a company, employees evaluate several aspects to determine the fit with their individual needs and lifestyle: total compensation (wages, paid time off, benefits), culture, and work-life balance. Companies which find the right balance as valued by their applicants and employees create a strategic advantage over other companies competing for the same employees; those that do not, create a disadvantage for themselves which may require finding another aspect to compete on so as to not lose good employees.

While wages are important, it is usually not practical or affordable to increase wages too far above market and studies show that the initial gratitude for a raise fades quickly. The reality is everyone needs to take time off from work to rest and recharge, to care for themselves or a loved one who is sick or injured, to mourn a family member, or to meet civic obligations such as serving on jury duty, voting, or serving as a volunteer fire rescue member. Additionally, those needs and priorities will vary from employee-to-employee.

Numerous factors go into developing a company’s paid time off so what works for one company can be completely wrong for another. When working with a company to develop their time off policy, here are aspects I ask clients to consider:

Philosophy and culture: Some companies consider their paid time off benefits as an inconvenient necessity while others use it to differentiate themselves in the job market by making them more attractive to applicants and current employees. Some companies want to manage and account for every minute of an employee’s day and time off while others allow employees to use time off whenever they need to without tracking or approval. None of these decisions are inherently right or wrong but, if contradictory to the company’s philosophy and culture, any can create more problems than the time off can fix.

Legal requirements: While there is no federal law mandating paid time off, many states require some paid time off in the form of sick time; general time off; bereavement; voting; jury duty; school activities; blood, organ, or bone marrow donation; time off due to being a victim of domestic violence, sexual assault, or stalking; etc. The paid time off policies of any company must at least meet all of the criteria of these laws including parameters of the amount of leave, how it is accrued, carryover, payout at separation, length of notice for use, and usage increments. It should also be noted that companies with employees working in multiple states must draft policies which satisfy the criteria of each state, even if you need to carve out exceptions for certain employees.

Industry and job responsibilities: Employee expectations for available time off vary by industry, job duties, demands, etc. While every employee needs time off, the reality is that employees in different industries and jobs often have differing expectations of and/or access to paid time off. For example, some general guidelines are:

In-person, service employees need to be in-person to meet client demands and needs and often work alone or in small groups so their absence has a bigger impact on operations. Typically, these are lower-waged jobs which correlates to lesser benefits. These companies tend to:

• offer only mandated time off with or without minimal time off in addition to that requirement;
• request significant notice periods but in reality, little to no notice may be able to be provided, especially if used for sick time; and
• usually keep sick and vacation separate to better control usage.

In-person hourly employees who work in a company’s facility and/or in larger groups who need to be in-person but, since there are other people in the same workplace, it is easier to absorb the absence. They usually have very structured schedules, often with the whole company working established hours or shifts. Given the direct correlation between employees’ attendance and company operations and profitability, time off is a luxury many companies cannot afford to provide frivolously. These companies often offer additional time off following a traditional model such as starting at two weeks after six months or one year with annual totals increasing corresponding to added years of service. Again, these companies tend to keep sick and vacation separate for better tracking but may combine all into a paid time off (PTO) bank for easier record-keeping.

Professional and/or remote salaried employees often have more flexibility with their schedules and view time off as a basic part of their overall compensation package. These employees can often do their work at any time of the day or week as long as they are also available when coworkers and clients need them. These companies tend to offer more generous time off as a competitive advantage in the labor market.  This time may be separated into sick and vacation but is often combined into PTO so employees can take time when they need it. Some companies go one step further and offer unlimited or unstructured PTO for eligible employees allowing them to take any time off they need as long as they meet the job requirements

As you develop your paid time off philosophy, consider the following:

• What do employees expect? Is paid time off an extra or expectation? Is it a nice benefit or part of a comprehensive compensation package including salary, bonuses, commissions, insurance, etc.?
• Do you want to use paid time off as a competitive advantage over competitors for the same workforce, meet the market, or lag behind? Do you plan to use other aspects such as wages, other benefits, or flexibility to attract and retain good employees?
• Do you want to offer only traditional paid time off (sick, vacation) or differentiate your company by offering unconventional options (i.e., sick pet or pet bereavement, community service, mental health days, etc.)?
• What are the impacts on your operations and other employees if an employee takes a day off and how can you accommodate this with offering more flexibility given how highly employees value workplace flexibility?
• What are the impacts on your budget, scheduling, and service levels if employees take all the time off you offer?

Whatever your philosophy, ensure that your policies are comprehensive; cover the legal minimums; and address all necessary aspects such as accruals, usage, payout, carryover, borrowing, etc.

Clients ask me all of the time, “How much paid time off should we offer?” My answer is always “It depends.” In reality, there is not one right answer or formula for how much paid time off a company should offer as so many factors must be considered. The days of the standard two weeks off every year does not work for most employees and therefore it does not work for most companies.

When deciding to apply to or stay at a company, employees evaluate several aspects to determine the fit with their individual needs and lifestyle: total compensation (wages, paid time off, benefits), culture, and work-life balance. Companies which find the right balance as valued by their applicants and employees create a strategic advantage over other companies competing for the same employees; those that do not, create a disadvantage for themselves which may require finding another aspect to compete on so as to not lose good employees.

While wages are important, it is usually not practical or affordable to increase wages too far above market and studies show that the initial gratitude for a raise fades quickly. The reality is everyone needs to take time off from work to rest and recharge, to care for themselves or a loved one who is sick or injured, to mourn a family member, or to meet civic obligations such as serving on jury duty, voting, or serving as a volunteer fire rescue member. Additionally, those needs and priorities will vary from employee-to-employee.

Numerous factors go into developing a company’s paid time off so what works for one company can be completely wrong for another. When working with a company to develop their time off policy, here are aspects I ask clients to consider:

Philosophy and culture: Some companies consider their paid time off benefits as an inconvenient necessity while others use it to differentiate themselves in the job market by making them more attractive to applicants and current employees. Some companies want to manage and account for every minute of an employee’s day and time off while others allow employees to use time off whenever they need to without tracking or approval. None of these decisions are inherently right or wrong but, if contradictory to the company’s philosophy and culture, any can create more problems than the time off can fix.

Legal requirements: While there is no federal law mandating paid time off, many states require some paid time off in the form of sick time; general time off; bereavement; voting; jury duty; school activities; blood, organ, or bone marrow donation; time off due to being a victim of domestic violence, sexual assault, or stalking; etc. The paid time off policies of any company must at least meet all of the criteria of these laws including parameters of the amount of leave, how it is accrued, carryover, payout at separation, length of notice for use, and usage increments. It should also be noted that companies with employees working in multiple states must draft policies which satisfy the criteria of each state, even if you need to carve out exceptions for certain employees.

Industry and job responsibilities: Employee expectations for available time off vary by industry, job duties, demands, etc. While every employee needs time off, the reality is that employees in different industries and jobs often have differing expectations of and/or access to paid time off. For example, some general guidelines are:

In-person, service employees need to be in-person to meet client demands and needs and often work alone or in small groups so their absence has a bigger impact on operations. Typically, these are lower-waged jobs which correlates to lesser benefits. These companies tend to:

• offer only mandated time off with or without minimal time off in addition to that requirement;
• request significant notice periods but in reality, little to no notice may be able to be provided, especially if used for sick time; and
• usually keep sick and vacation separate to better control usage.

In-person hourly employees who work in a company’s facility and/or in larger groups who need to be in-person but, since there are other people in the same workplace, it is easier to absorb the absence. They usually have very structured schedules, often with the whole company working established hours or shifts. Given the direct correlation between employees’ attendance and company operations and profitability, time off is a luxury many companies cannot afford to provide frivolously. These companies often offer additional time off following a traditional model such as starting at two weeks after six months or one year with annual totals increasing corresponding to added years of service. Again, these companies tend to keep sick and vacation separate for better tracking but may combine all into a paid time off (PTO) bank for easier record-keeping.

Professional and/or remote salaried employees often have more flexibility with their schedules and view time off as a basic part of their overall compensation package. These employees can often do their work at any time of the day or week as long as they are also available when coworkers and clients need them. These companies tend to offer more generous time off as a competitive advantage in the labor market.  This time may be separated into sick and vacation but is often combined into PTO so employees can take time when they need it. Some companies go one step further and offer unlimited or unstructured PTO for eligible employees allowing them to take any time off they need as long as they meet the job requirements

As you develop your paid time off philosophy, consider the following:

• What do employees expect? Is paid time off an extra or expectation? Is it a nice benefit or part of a comprehensive compensation package including salary, bonuses, commissions, insurance, etc.?
• Do you want to use paid time off as a competitive advantage over competitors for the same workforce, meet the market, or lag behind? Do you plan to use other aspects such as wages, other benefits, or flexibility to attract and retain good employees?
• Do you want to offer only traditional paid time off (sick, vacation) or differentiate your company by offering unconventional options (i.e., sick pet or pet bereavement, community service, mental health days, etc.)?
• What are the impacts on your operations and other employees if an employee takes a day off and how can you accommodate this with offering more flexibility given how highly employees value workplace flexibility?
• What are the impacts on your budget, scheduling, and service levels if employees take all the time off you offer?

Whatever your philosophy, ensure that your policies are comprehensive; cover the legal minimums; and address all necessary aspects such as accruals, usage, payout, carryover, borrowing, etc.