Creating a personal time off (PTO) policy that works for your company and your employees can be challenging. I’ve seen my fair share of policies while working with customers at Kin. Some create great work environments, others put employees into a panic and create a constantly churning workplace.
Before we begin, let’s define what personal time off means to our team as often times it can mean different things at different companies. At Kin, personal time off is a stand-alone policy our employees can use for vacation or time away from the office in general. We have separate policies outside of our personal time off policy that let team members take time for illnesses, bereavement, maternity or paternity leave, jury duty, etc. For a closer look at different policies, check out a previous blog post of ours here.
By now, we know that PTO policies do much more than allow an employee to take time off work without a financial burden. They allow employees to recharge and regroup. They even allow employees to do better at work, since studies link employees that use all of their PTO to being more engaged at work and more likely to receive incentives, bonuses or promotions. Time off policies are one of the top benefits employees look at and weigh when thinking about making a career move. At times it even surpasses salary as a factor.
With the weight of this benefit, what is the right answer when it comes to setting up a policy that gives your employees the flexibility to leave the workplace that they need, but also the stability that you deserve as an employer?
The answer may not be clear cut, so let’s walk through the models and how to come to a conclusion that works for your company.
Personal time off policy models
There are various personal time-off models out there, but the three most popular types are upfront, accrual and unlimited.
Upfront: An upfront time off policy gives the employee all the time they are owed for the year on the first day of the policy period. For example, if a policy runs January 1 – December 31 and I receive 20 days off per year, I am eligible to use all 20 days starting on January 1 of that policy year.
Accrual: An accrual time off policy gives employees more time as they work more hours. For every day or week worked, the time off policy accrues a certain amount of time. For example, if I receive 20 days a year of paid time off within an accrual policy, I will have about 10 days ‘earned’ to use by July, and my full 20 days by December. Often times, these policies allow you to ‘borrow ahead’ if you want to take a large trip before you’ve accrued enough hours. This is not always the case, however.
Unlimited: An unlimited time off policy allows the employee to take as much time at any point in the year that they so choose. Occasionally, an unlimited time off policy will have a minimum amount of days or weeks an employee must use each year.
How Kin does personal time off
Instead of just creating a pro and con list for each model next, I wanted to walk through some real-life scenarios I’ve uncovered when working with our customers and while working on our own people operations.
For the sake of transparency, Kin and our parent company, We Are Mammoth, currently operate on an upfront policy. Employees have the ability to use as much of their allotted them as they wish at any point in the year.
We also have a policy of paying out time out when an employee leaves. This is when our accrual policy comes into play. If an employee has used more than their allotted time earned to date at the time of resignation, we will deduct the ‘borrowed time’ from their final paycheck. If they’ve used less than what they’ve accrued, we’ll add the monetary value of that leftover PTO to the final paycheck.
It’s a win-win upfront/accrual combination for us: Employees can take the vacations they want when they need to, and we don’t lose money if an employee leaves in the middle of the year and has used more personal time off than what she or he has earned.
The problem with the unicorn unlimited time off policy
We’ve seen a lot of companies come to Kin starting with an unlimited policy. Many folks doing so complain that the opposite happens of what you’d expect: people just don’t leave the office.
How could an unlimited policy create such a problem? Studies show that when you have an unlimited vacation policy, you may actually be creating an environment where people compete to take the least amount of time off as a way to show who is most loyal to the company.
There is no competitive, driven employee on this earth that will take advantage of the policy. And in turn, folks who don’t enjoy their job or feel ownership over their roles will be the ones likely to use it most.
Companies who see this deterrence are quick to put in a minimum time off amount per year employees must hit. Unfortunately, many great employees do just that and stop once the quota has been achieved. It sounds great – giving a benefit that our best folks don’t use? Talent acquisition through the roof, costs reduced and additional output! Yes!
Nope, not so fast.
When an employee doesn’t use their PTO, they’re more likely to burn out and perform poorly at their job over time. It’s proven time and time again. It’s extremely beneficial for both you and the employee to encourage and – in some cases – make them use their personal time off.
The scarcity mentality with upfront and accrual
Now that upfront and accrual models look like much better options, we have to talk a bit about their dark sides too. If you do not give enough time to employees each year, they are likely to have a scarcity mindset and not take it at all, or take a long vacation at the end of the year when they finally feel comfortable enough to know something couldn’t possibly go wrong in their personal life that they would need to take time off for.
For example, if your team only gets 8 paid days off a year, they may choose to ‘save’ those days for if their child is sick, or if an unexpected doctor appointment or family emergency comes up. None of the events I listed above are truly allowing the employee to take time off to unplug and recharge, yet that’s often what ‘eats up’ their personal time off balances. As an employer, is it worth adding a few more days to their compensation package to switch their mindsets to abundance versus scarcity? At Kin, we believe so.
We offer 15 days upfront the first year of employment. The second year, an employee receive 20 days and the third year on they receive 25 days a year. This is in addition to paid holidays, sick time and other basic policies such as maternity/paternity leave, jury duty, bereavement, conference time off, etc.
Most of our team takes their time away from work without hesitation, though we do frequently remind them to do so. It’s important to us that our team uses the benefits we provide them. At the end of the day, it makes them better at work and better family members and friends at home. No one loses.
With accrual, the scarcity mindset only gets worse. Since all of the time you can accrue in a policy year doesn’t come to you at once, you have employees forced to calculate how much time they’ll have at X date to see if they can take a vacation or not. It’s also tough on employees who may have a family emergency or another reason to leave, but not have enough time to take to adequately deal with it.
It gets even worse when accrual employees are left with a bulk of their time earned at the end of the year. Companies often tell us that they see massive exits of employees for vacation in the last quarter due to this, leaving a time when you should be finishing strong in the office and hitting those annual goals as a ghost town instead.
Should you pay employees to take a vacation?
Now that you have an idea of all the benefits that good vacation policies have other than attracting quality talent to your company, the question becomes, how do you incentivize folks to actually use PTO? Some companies have decided to go the route of actually paying employees to leave the office and dubbing it a ‘paycation.’
“I think this comes back to the idea of what is the purpose of this benefit? The business reason for me is to ensure that I have more T-shaped employees, meaning that they are very deeply knowledgeable in their expertise from their work experience, but that they also have a varied-interest personal life that allows them to bring different perspectives to the table. Far things allow for that better than vacation. And if paying for it makes them more likely to take it, I’m all for it,” Mary Ellen Slater, an HR consultant and business owner, told me a few months ago during a chat.
Paid vacation stipends can range from a few hundred dollars to lavish multi-thousand dollar checks. It all depends on your budget and your goals. While it is a great way to get people out of the office, it also does come with its own sets of worries. What’s deemed a ‘vacation’ to be paid for? Does a ‘staycation’ count? Make sure you address this thoroughly prior to implementing it so that you nor the employee are disappointed come time to redeem the stipend.
After reviewing the pros and cons of the three major time off models, which will you choose for your company and why?