Flexible Time Off & Alternate Forms of Paid Time Off to Know About
The average American worker enjoys 11-14 days off in their first year of employment. But many don’t utilize the vacation days offered by their employer — not because of any formal policy, but by their own choice. In some cases, employees don’t feel like they can take time off, or that it would be unprofessional to do so.
But employees need time off in order to be at their best. Employee burnout has several causes, but productivity definitively takes a hit when employees don’t use their provided vacation time. This is unfortunate, considering that unused vacation time actually hurts employers as well.
What causes a company culture that keeps people from taking much-needed time off? There are likely several factors. But in some cases, traditional earn-it-and-bank-it paid time off policies may be the root issue.
As work culture changes post-COVID pandemic, HR departments have had to be agile and adapt to their employees’ needs. The world drastically changed when suddenly the place we relaxed also became the place where we worked — for some people, for the very first time. Establishing a system of paid time off that actually allows employees to relax is now more important than ever.
While flexible time off systems and alternate forms of paid time off may seem “out there” or only for certain types of businesses, a nontraditional paid time off format may be exactly what your organization needs to best serve employees post-COVID. At minimum, it’s worth reconsidering what your employees need from a time off policy so they can do their best work and remain committed for many years to come.
Let’s look at how many flexible time off systems work and how you can implement them in your own organization.
FTO vs. PTO: What’s the Difference?
First, we have to define terms. PTO (paid time off) is a benefit given to employees by their employer that allows them to receive a standard day’s pay during a day off. These can be used for vacation and sometimes for taking time off to heal from sickness. FTO (Flexible Time Off) is a way of handling PTO with fewer scheduling limitations. This allows more freedom for people to use their time off how they choose. FTO can take multiple forms, which we’ll cover in detail later.
FTO is a system in which distinctions between PTO, bereavement leave, floating holidays, etc. are completely dissolved. In this system, all usable leave is unlocked at the same time. Unlike traditional PTO (which is usually earned in small amounts each month), FTO gives employees a solid block of paid time off that they can use regardless of reason. Parental leave may also be classified under this category, but FMLA leave is required by law and is typically treated as separate.
There are several advantages to an FTO system, especially for remote workers and positions where flexibility is highly valued. For instance, if all types of leave are classified the same way, there may be less of a delay in securing time off. This system may also be much easier to work with logistically if there are fewer categories of leave to catalog and administer.
Some companies may institute blackout periods wherein employees are not permitted to use their days off (typically around holidays or busy periods). However, this might limit some of the benefits of a completely flexible system.
Why Consider Alternative Forms of PTO/FTO?
The discourse around different configurations of PTO is fairly recent. Naturally, many companies are skeptical about changing their existing system. After all, a change to the system doesn’t inherently mean employees will use more leave.
At the same time, PTO is considered a fringe benefit that isn’t an explicit part of a person’s salary. That means it’s much more flexible than most aspects of the employee experience. If you decide to thoughtfully rework your time off system, here are a few benefits you might see:
Increased Employee Honesty
Classic PTO systems (i.e. earned leave, vacations, and guaranteed sick leave) don’t always track with what people need. Someone with a chronic condition may need to take days off for doctor’s visits — but does that fall under sick leave or basic (earned) PTO? Employees may also need to take time off for reasons that don’t fall under vacation or sick leave, and may lie just to get the time approved. If your time-off policy encourages dishonesty about the reason for any time-off request, it may discourage workplace harmony.
Less Anxiety Around Accrual
There are also several problems that can emerge within a classic PTO accrual system. Classic systems sometimes require that a person use up a certain type of leave before tapping into another. For example, someone may have to use up all of their PTO before they can tap into their bank of sick leave. This can be especially detrimental to people with specific health needs or chronic conditions.
These systems can also be divisive if they have differing rates of accrual (i.e. time off is earned in correlation with time worked, whether in months or in hours). If a new hire needs time off for an emergency in their first week, it may not be there for them simply because they haven’t been at the company long enough. As another example, if your organization reimburses employees for unused vacation days, there is a risk of employees hoarding vacation time.
Improved Employee Equity
One (often invisible) source of inequity within an organization is an uneven divide between those who can “afford” to take vacations and those who do not feel able to do so for whatever reason. In other cases, rates of accrual may be uneven across the company hierarchy. However, making vacation days available from day one of an employee’s tenure enforces the idea that your company values work-life balance regardless of seniority.
The bottom line is that a PTO system often bears rethinking if most employees aren’t feeling the benefits. If something isn’t working, you have a greater ability to improve things and definitively help employee engagement by implementing a nontraditional system.
What does a PTO/FTO Policy Need?
At minimum, a paid time off structure requires a procedure for requesting time off and a policy for how unused time off “rolls over” (if at all). However, a truly effective PTO/FTO system also requires a lot of trust between management and employees. After all, time off still needs to be planned and approved to ensure your company remains productive, and employees need the freedom to request time off when they need it.
Here are some key elements to make your time off system work well:
- Details of the accrual system: First and foremost, employees need to be made aware of how they can earn and use their PTO. Outline details and do your best to anticipate questions new employees may have coming from a different kind of PTO system.
- Number of days off allowed per employee (or the maximum rate of accrual): The United States does not have any federal laws mandating a minimum number of vacation days for employees. This means it’s extra beneficial for companies to state the maximum amount of vacation that employees can earn.
- Details about sick leave: United States law also does not mandate a standard number of paid sick days to be granted to employees. This is why it’s even more important to be explicit about whether taking time off for medical appointments counts as sick leave. You’ll also want to specify when employees need to present a doctor’s note and what happens if the employee runs out of PTO but still needs time to recover.
- Policies for time off in unforeseen circumstances: What happens if an employee suddenly contracts a major illness? What if they experience a family death and now need to fly out to a funeral? Be explicit about what employees need to do in case of an emergency need for leave work, and you’ll likely save them a lot of anxiety.
- Policies around parental leave: FMLA leave is typically considered separate from PTO, but it should still be explicitly laid out in terms of structure within the employee handbook. While it is not required by law to offer paid FMLA leave, you can certainly choose to pay employees for a certain period of time as a competitive benefits offering.
- What happens to PTO when an employee leaves: Depending on the state, employees may be entitled to any unused PTO after they leave their position (which you’ll need to pay out). If there is a window wherein employees can cash out their PTO before leaving for a new position, this must be made explicit.
- Details about when employees don’t need to use PTO: Your time off policy should state what holidays are automatically considered days off for employees, as well as what circumstances automatically count as approved time off (such as military service).
Overall, it helps to think ahead to what questions employees may have around PTO and how they’re most likely to use it. If you have the time and resources, conduct a company survey so you can have the data readily available. The limited laws around PTO allow companies plenty of flexibility to design a system that works best for everyone.
Alternative Forms of Time Off
Traditional PTO systems aren’t the only way (or even the most effective way) to manage employee time off. There are several alternative options to traditional banked PTO that can allow your employees more freedom and balance. While not all of these models may work for your industry or unique circumstances, testing and careful thinking can allow you to develop a system that benefits everyone.
Here are some of the most flexible time off structures used by other companies, as well as the perks and drawbacks of each:
This trendy form of PTO became popular back in 2019, and has been held up as an example of creative employee perks that pay dividends. This system allows for employees to take paid time off whenever they request it and it is approved. There is no accrual, nor a set bank of paid time off that must be used by a certain time. Because of its streamlined nature, an unlimited PTO system has a significantly lighter administrative burden than a traditional PTO system.
However, since its initial surge in popularity, the general opinion about unlimited PTO is that it isn't very effective. In practice, employees usually take no more than 4-6 weeks off during the year under this policy. Employees have also reported an implicit pressure to not take extensive time off, especially if they’re not the top performers on their team. Conditions must be positive and trust must be high for employees to enjoy all the benefits of unlimited PTO.
Originally, floating holidays were created with equity in mind. Employees that celebrated holidays not automatically given off under federal law could still enjoy the same amount of time off as everyone else, on their own terms. Under a floating holiday system, employees are given a pool of PTO to use specifically for celebrating holidays. The employee has the autonomy to use their time off as they wish.
It’s important to note that this form of PTO is always given in addition to time off mandated by federal law. It best serves employees who want time off for holidays that American workplaces may not acknowledge, such as Diwali or Lunar New Year.
However, a system of floating holidays still requires employees to seek permission from managers. If there is resistance or bias from upper management toward taking time off during a certain quarter, the employee may not be granted the time off. It may also cause additional administrative burden to arrange and coordinate paid holidays across the entire body of employees.
Buy/Sell PTO Programs
This system of PTO gives even more power to employees, allowing the pre-tax “purchase” of additional time off via a deduction in pay (often spread out over the course of the year/PTO accrual period). There are usually no limits on the amount of PTO employees can procure in this way. If they have unused vacation days after a certain period, the employee can then redeem them for a payment equivalent to what they would have paid for them as extra days.
The exact configuration of a buy/sell PTO program can vary by company — employees might enjoy the ability to redeem unused vacation days but have little interest in giving up part of their paycheck for additional days. A buy/sell program doesn’t depend on a certain rate of accrual, so it may be an excellent addition if temporary cutbacks need to take place. It’s also typically offered as an optional part of a “cafeteria plan,” i.e. an employee benefits plan that allows for customization and benefits choice.
However, this system needs to be developed with the advice of the employer’s legal team, insurance broker, and tax advisor to ensure it follows all relevant laws. Buy/sell PTO programs obviously favor employees with the financial leeway to afford a temporarily smaller paycheck. This also greatly benefits employees who don’t use a lot of PTO, since they can eventually “cash out” and enjoy a payment not available to employees who choose to use their time off. This system also does not guarantee that employees will receive managerial approval to use PTO at certain times of year.
9/80 Work Schedule
This unconventional method of PTO is ideal for remote workplaces and those who explicitly value employee results over physical presence. This system accumulates leave over periods of two weeks, wherein employees only need to work 80 hours over that time regardless of when they choose to complete those hours. Employees are encouraged to work for 9 hours most days and one day for 8 hours, leading to regular days off in addition to accrued PTO. Because of this innate flexibility, many find this system to be quite helpful and encouraging toward productivity.
That said, a 9/80 work schedule is not strong enough to be a company’s entire PTO policy. Like floating holidays, it works best as an addition to a fleshed out PTO policy. Employees may not want to arrange hours themselves to “make” days off, and may not feel empowered under the system even if they have flexible hours.
Mandated Time Off
After a certain amount of time, some companies may decide to pay employees to take a vacation. This is often offered in addition to traditional PTO, since companies also frequently offer cash allowances for employees to use while on the planned holiday. This is a way for organizations to make a statement about promoting work-life balance, as mandated time off is actively endorsing rest and recharging (and lowering the barriers to do so).
However, there is one big drawback to this plan: employees often need to stay at the company for a certain length of time before they unlock this benefit. After all, a company isn’t going to spend thousands of dollars on a vacation for an employee who’s planning to leave in six months.
This policy also isn’t a total safeguard against vacation negativity in the workplace. If an employee’s manager discourages their team from taking vacations anyway, there’s only so much that a company-wide perk can do to change the culture.
How to Administer Leave Using Criterion
With Criterion, the process of managing employee time off is easier, more accurate, and more efficient. Here’s a look at how you can use our HCM to simplify your leave management process:
1. Set Up Your Time Off Plans
In Criterion, time off is managed through plans (preset packages that determine how time off is categorized and distributed). Users start by setting up custom time-off plans to fit the needs of the organization. Within each plan, you can designate and organize different types of time off (sick leave, family leave, vacation, unpaid, etc.), set custom eligibility requirements, and establish other rules to ensure the right time off packages are distributed to the right employees.
Criterion gives you complete control over how your system works. You can connect multiple types of time off to one plan or create a separate plan for each time off type. The system is flexible to allow you to distribute PTO in the way that makes the most sense for your organization.
In any case, setting up complex time off systems can be challenging. That’s why we offer full support and guidance throughout the implementation process. Our team will work with you to set up your plans, help you test them, and ensure that they are working seamlessly within your organization’s existing systems.
2. Employees Request Time Off
With Criterion, employees can easily request time off through the self-service portal. Once you set up your time off plans, employees can select the type of time off they need and specify the start and end dates of their absence.
In addition, employees can upload any documents related to their request, such as a doctor's note or jury duty summons. This reduces the need for physical documentation and allows for a more streamlined, paperless process.
3. Managers Approve and Monitor Time Off
After an employee puts in a time off request, managers can view requests for all team members they’re directly responsible for under “Team Time Offs.” From here, managers can approve or deny requests and keep a close eye on the amount of time off being used during any given period. You can also create calendar views and export them to sync directly to your iCalendar or Outlook calendar to make sure your schedule is updated across devices.
All time off requests are automatically routed to a manager’s email inbox where they can be approved within the message.
They also appear in the manager’s “My Tasks” list on the Criterion home page and can be easily approved there as well. This streamlines the time off approval process and puts work-life balance front of mind for managers and administrators.
Your employees need to relax and have time away from work to produce good results for the company. In order to ensure they do that, they need a PTO system that will speak to their needs. You might be wary of giving employees more freedom to take days off, or giving them paid days off too early in their tenure. But encouraging employees to take sufficient time off can increase engagement, boost productivity, and more.
Changing your time off system is always going to affect how you operate. In order to devise a system that doesn’t destroy your company infrastructure, don’t just do what you’ve always done — focus on what provides the best results for everyone involved.
But managing any time off system with anything other than industry-specific software is going to be a serious challenge. Trying to track and approve time off requests while still allowing employees the freedom of self-service is nearly impossible if you’re using spreadsheets or other homegrown solutions.
That’s one reason we built Criterion. It’s an HCM designed with HR professionals in mind. With Criterion, you can easily build a flexible time off system that benefits your entire company. Our time tracking and time off request features put the power in employees’ hands to make requests and easily find key information regarding leave policies, remaining time off, and more. At the same time, the system allows managers to easily track time off on the backend and customize the platform to meet their needs.
Call to schedule a demo today, and you’ll be surprised at how much Criterion can do for your employees.