Vacation and Sick Days vs. Paid Time Off

William R. Pupkis, CMPE, Healthcare Consultant
Vacation-DaysThere are several basic approaches regarding using paid days off as an employee benefit.  The traditional method of assigning paid days off is to allocate a number of vacation days and a number of sick days.  These are specifically defined paid days off given based on the employee’s length of service.  The idea is to provide vacation time as a benefit to be used to rest and relax in order to return to work refreshed.  In the case of sick time, days are provided to allow employees to recover from illness, injury, or surgery.

Rather than allotting certain days for vacation time or sick leave, many practices have changed their policies and established a program of paid time off (PTO).  This method gives employees the flexibility to use time off to meet personal needs, while also recognizing their ability to manage their own PTO.  This time can be used for vacation, personal or family member’s illness, attending children’s school activities, medical/dental appointments, personal business, or emergencies.  Typically, PTO does not replace the holiday schedule; qualified employees would still be compensated for holidays.

An employee’s entire PTO allotment can be available at the beginning of the year.  Or, another approach is for employees to accumulate a specific amount of PTO each pay period.  For example, employees who would receive ten days of PTO for the year would earn 1.54 hours for each 40-hour work week.  Employees can either use or bank this time as the year progresses.

"view days as a 'matter of right'"

Regardless of the system, vacation/sick days or PTO, a decision needs to be made regarding what to do with time not used within a specified period, such as at the end of the calendar year.  One approach is to view the days as a “matter of right.”  Vacation and sick days accumulated are essentially employees’ earned property.  If employees have worked the entire year, without taking all the days to which they are entitled, then they should be paid for unused time.  This extends to employees being entitled to a pro rata portion of their allowance if they resign or are terminated during the year.

A second approach is to let the time accumulate.  The time is not converted into dollars, but rather continues to be available as a benefit.  “Use it or lose it” is another approach.  Employees lose all unpaid time they do not use by the end of the year.  Alternatively, employees could carry over a limited number of days to the following year.

I have strong feelings regarding how to handle days not used by the end of the year.  I urge you not to allow employees to bank this time year after year.  The banked time reflects an employee’s current hourly rate.  As an employee earns pay raises, banked time used three or four years in the future is paid at the current, increased hourly rate.  This just does not make good business sense.

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