What is Paid Time Off? Paid Time Off (PTO) is a policy in every organization that allows employees to pull together all their sick days, vacation days and other personal days, then use that time as desire or need arises. Since there is no legal requirement for the minimum number of paid time off in the US, employers are the ones who determine the amount of paid time off that every employee should be allotted. Employers have to be careful though, because their PTO policy is one of the main factors that determine the kinds of employees you will get and the number you will be able to retain in your business.

How do employers determine PTO policy for their business?

There are several factors that employers must consider in coming up with a PTO policy for their business:

1. Take vacation as part of the benefits package

Usually, an employee’s overall benefits package is valued at about 20-40 percent of their basic salary. This includes all the benefits offered by the employer, such as life insurance, 401(k) and medical insurance. This explains why there is need for PTO plans, because employees are unable to budget and document for sick or even vacation days.

2. Determine the employee’s current need

It is important for employers to take time to understand the amount of time employees take on vacations yearly to calculate vacation pay, and then use that information to adjust what you are offering at the moment. If for instance some of your employees are taking days off because of a sick child or an aging parent, it might help a lot to design a general PTO for all your employees. However, this might not help much if they miss work because they are the ones that are getting sick.

3. Consider your employee’s demographics

If you look closely, the younger people are more flexible in the workplaces as compared to the older ones. If your employees are mainly millennial, you might be able to design some flexible time-off policies. The same goes to those that are mainly single; a flexible lump-sum PTO plan might work very well for them. There will be a big difference if most of your employees are in Generation X or are baby boomers.

4. Consider what your competitors are offering

In everything, you have to keep up with your competition. It is important to note that what you are offering as PTO will not only be beneficial to your current employees but it will determine the kinds of employees your business will attract in future. Besides, if most employers in your niche are offering PTO plans then it will be a good idea to design one for your employees.

How to determine PTO Amounts

Paid Time Off is on the rise today and so, employers must know how to calculate PTO to keep up with the competition. It might be easier to calculate PTO by employee pay period, then you can distribute the accrued PTO liability throughout the year. For hourly or part-time employees, you can calculate PTO based on the number of hours worked. A PTO calculator will help you make easier and more accurate calculations.