Are "Paid Time-Off Banks" a Good HR Tool for Your Company?
We assist clients to productively manage their workforce. A couple of weeks ago, I discussed ways to mitigate the risk of embezzlement. Today, I am writing to discuss the use of "Paid Time-Off Banks" ("PTOB"s) to reduce human resource management costs, while improving employee job satisfaction.
Employees are a critical asset. They are also a substantial expense. Human Resource policies should both enhance employee job satisfaction and control employment related expenses, including the cost of HR management. Some employers are adopting the PTOB model to provide employees with flexible leave while simplifying the burden ofleave accounting. Of course employers who can afford it may give up labor intensive HR management tasks and outsource the heavy lifting. There are benefits and challenges to both keeping HR in house and outsourcing it, but, that is a topic for another letter.
How does a PTOB differ from traditional leave policy?
The difference is a matter of simplification. A PTOB allots to each employee a set number of paid days-off which may be used for any authorized purpose. The employee decides whether to use the days for sick, vacation, "personal day," bereavement, or family leave purposes.
The benefits are pretty straight forward. HR accounting and personnel manuals are simplified and HR management accounting tasks are reduced. Employers can quantify and value the total of all permissible leave days and reduce the excesses resulting from separately accounted personal, bereavement, and family leave benefits. Employees feel more empowered and experience more job satisfaction. With happier employees the workforce may become more stable, less transient, and more productive.
Management need not give up control. Prior notice and approval requirements remain, preserving an employer's limited ability to pre-schedule leave. Seniority based leave earning rates remain, preserving the incentive for long term employment. The employer's right to grant additional leave in appropriate emergency situations remains unaffected.
What's the catch?
Policy planning and Financial Accounting. Conversion requires consideration of financial, accounting, and morale concerns. Unless the employer uses the PTOB conversion to reduce the total number of leave days as suggested above, the model can result in a greater number of leave hours or days by including bereavement, personal, and family days.
State law often treats traditional sick leave and vacation time policies differently for purposes cash-out requirements upon termination. Designated sick leave is often treated as "granted leave" and therefore is not considered earned compensation. See www.dir.ca.gov/dlse/FAQVacation.html. On the other hand vacation time is often considered "accrued leave" and is thus earned compensation that must be cashed out when employment is terminated. States like California have decided to treat all PTOB time as the
equivalent of vacation time that must be cashed out when an employee leaves. Employers using a PTOB model should be aware of relevant state law and may consider banking an appropriate cash value to mitigate against unplanned funding constriction and provide accurate financial reports of entity debits and value. Banking accrued leave debits locks down capital.
The Family and Medical Leave Act (FMLA). Again, unless the employer uses the PTOB conversion to reduce the total number of leave days as suggested above, the model results in a greater number of leave hours or days by including bereavement, personal, and family days.
The FMLA applies to businesses that employ fifty (50) or more. It grants leave rights to employees who are new parents, suffer from a defined "serious medical condition," or have a family member suffering a serious medical condition. This includes the the right to take up to twelve consecutive weeks of unpaid leave and then return to their same job without loss of status, duties, or compensation. The other niceties of the FMLA also are for another letter.
The FMLA allows employers to require that an employee exhaust all paid leave during the use of FMLA leave, therefore preventing employees from stringing together paid and unpaid leave. Exhaustion of leave frees up locked down capital and shares the cost of the employee's absence from the work force.
In sum, the PTOB leave model provides employers with a new flexible option that may result in cost savings resulting from reduced HR work, reduced total leave days, and greater profits resulting from employee job satisfaction. Consideration, adoption, and implementation of a PTOB plan raise policy and planning concerns to be worked out. Of course these concerns present the joy of working with us for a bit to get it right.