4 Things to Consider Before Implementing Paid Time Off Policy

Because the U.S. has no federal laws around the topic of paid time off, developing a policy can be difficult for small business owners, who need to balance staffing needs with employee fairness. When struggling to come up with your small business PTO policy, take these four elements into consideration to come up with an agreement that works for both your business and your employees.

1. Start with state and local laws

Find any local or state laws on paid leave and use these as a starting point when coming up with your PTO policy. These laws may dictate the type of paid leave you must offer, as well as the way in which time can be used by employees or by the organization. For example, you cannot offer a “use it or lose it” approach to PTO in the state of California, in which you rescind any unused days at the end of the fiscal year. However, you are allowed to place a cap on the number of days employees can bank at any time, according to Knowing the local laws will help you stay on the right side of any applicable policies and regulations.

2. Come up with a competitive policy

To attract and retain top talent, you’ll want to come up with a time off policy that is competitive with other players in your industry or area. Otherwise staff may come onboard to gain experience in the field, then leave with a more attractive offer from Company B, your main competitor.Forty-two percent of businesses surveyed by the Society for Human Rights Management offered a PTO plan, with non-profit and for-profit businesses more likely to do so than government agencies. The average number of PTO given to first-year hires was 15 with annual increases up to 26 days after 17 years of tenure. Only 12 percent of survey respondents did not use a ranked system for allocating PTO.

3. Look into a time tracker

If your small business does not have a dedicated HR person to keep track of PTO requests and time banks, purchase a time tracker system so all employees can see at a glance how much time they have and can easily input PTO requests. Many online payroll tools offer this functionality. Save time by choosing one of these payroll processing systems and ensuring all staff members know how to properly report time and input PTO requests.

4. Determine whether you’ll offer a tiered or flat policy

For large companies, it can make sense to offer different tiers of PTO as a way to recognize veteran employees. If you have a small business with less than 10 employees, offering a tiered system can create more staff tension rather than promoting company loyalty. When structuring your policy, think about what makes sense to offer staff based on your company size, type and philosophy. Also think about whether PTO can be used in hourly, quarter-day, half-day or full-day increments.

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