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Oct06

Transitioning PTO Policy

Our company currently awards employees their PTO for the upcoming year on their anniversary date (which is frontloaded meaning they get it all at the beginning of that anniversary year). We would like to transition on January 1 to a new PTO policy that accrues on a per pay period basis. There are a few other changes to occur as well: 1) Reducing the total amount awarded per category of employees because they have been getting too much time. 2) Per pay accrual 3) Employees currently cash out any remaining hours (up to 40 hours) at the end of their anniversary year. With a per pay accrual, I am assuming we will now need to offer employees the opportunity to roll over time so they do not start a new year off with no time or offer them an option to roll over/cash out PTO so they do not lose that perk. My question is how to most effectively transition this PTO policy in January considering the employees who have anniversaries in the 4th quarter will have just gotten PTO accrual based on the previous year amounts at their anniversary time?

The best advice for transitioning a PTO policy is to prepare and forecast potential issues as much as possible. Update the policy as needed and consider its effect on all staff

Even though a paid time off (PTO) policy already exists, it’s important to mention that some states and municipalities have adopted legislation mandating a certain amount of sick time be provided to employees. Also, several states require employers to inform employees of changes to vacation policies in specified manners and timeframes. So, when updating a PTO policy be certain that there are no applicable state or municipality regulations that must be considered.

Most accrual plans often include a maximum accrual amount or a cap. Meaning, employees can only accrue up to a specified number of PTO hours. A common accrual maximum is two times the amount of PTO time an employee will accrue in one year. Once an employee reaches the maximum he won’t earn anymore vacation time until he uses some of his accrued time. Adopting an accrual maximum encourages employees to use their vacation time instead of “banking” it. Offering a cash out option is possible but consider the impact on business operations. Some employers chose to offer cash out options since it provides an incentive for employees not to take time off; subsequently, working more. However, discouraging time off may lead to employees coming to work sick or employees becoming exhausted or overburdened since they’re not taking the appropriate time off to relax.

Determine how each employee in the company will be affected by the plan transition. Doing so ensures any potential issues are caught prior to the transition. Prorate employee accrual rates for the first year of the transition based on their last anniversary vacation allotment. Consider the following examples:

Jane has an anniversary date of January 6th. She was awarded 80 hours PTO vacation time on her anniversary date in 2014. As of January 1, 2015, Jane would be able to transition into the new PTO accrual system and receive her full 80 hours with no prorated accruals needed.

Bill has an anniversary date of April 25th. He was awarded 80 hours of PTO on his anniversary date in 2014. It wouldn’t be fair for him to receive another full 80 hours on January 1st. Thus, the accrual amount must be prorated. An employee receiving 80 vacation hours per year accrues 1.54 hours per week. Since he’s received 80 hours to cover the April 2014 to April 2015 year it must be determined how much more PTO he should receive for the remainder of the year (May – December 2015). The employee would only be eligible for 36 weeks worth of accruals or 55.44 hours to be awarded on January 1st. (36 weeks x 1.54 hours accrued per week = 55.44 hours).

Tom has an anniversary date of October 25th. He will be awarded 80 hours of PTO on his anniversary date in 2014. As of Jan. 1, 2015, it would be only two months since his last award. It wouldn’t be fair to give him another full 80 hours PTO. So, the accrual amount must be prorated. Since he’s received 80 hours to cover October 2014 – October 2015 it must be determined how much more PTO he should receive for the remainder of the year (November and December 2015). The employee would only be eligible for 10 weeks worth of accruals or 15.40 hours to be awarded on January 1st. (10 weeks x 1.54 hours accrued per week = 15.40 hours).

After calculating the total hours determine the per pay period accrual rate by dividing the total eligible hours by the number of pay periods in the year.

At the end of the transition year, employees will accrue vacation time as established and there will be no need to prorate it.

Remember to edit the existing vacation policy. Make sure the new policy is clearly written and easily understandable. Distribute the new policy along with a detailed memo to all affected staff in a timely manner. Anticipate a decent amount of questions/concerns from staff since PTO is a very important benefit to most workers.

This entry was posted on Monday, October 6th, 2014 at 10:48 am and is filed under
Benefits, Human Resources Management.
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