When establishing a time-off benefit, there are a few key elements to consider: types of time off, how it is administered, what to do with unused time, and the process of rolling out the policy.

Types of time off: Generally, the best practice and progressive approach to time-off is to offer one allotment of time (sometimes called Personal Time Off or PTO), rather than separate vacation and sick time. You may wish to offer more time off than required by your state sick leave requirement, and in this case, you can still offer one combined benefit as long as it meets or exceeds your state leave minimum.

Lump Sum or Accrual: You may decide to offer a ‘lump sum’ of time off, where employees have access to their entire allotted time off benefit at once, or allow employees to earn their time off at an accrued rate based on hours worked or length of services. A lump sum is simpler to administer, however it may lead to uneven workload distribution or abuse. Meanwhile, accrued time off rewards longevity and encourages attendance, but requires payout of accrued unused time upon separation (ie termination) since it is an earned benefit.

Handling Unused Time: The first decision for this point is to determine when each employee’s time-off benefit will reset; we recommend resetting at the end of the calendar year, or at the end of your business’s fiscal year. (An alternative would be to reset on each employee’s anniversary date, which may make sense for smaller organizations who offer a lump-sum of time-off, as it distributes the reset dates throughout the year, but is not scalable). Next, you will need to decide if unused time off will carry over to the next year or if it will be “use it or lose it”. A good compromise is to allow a small amount to carry over (perhaps the equivalent of one week), and make the rest “use it or lose it”. This balances the desire to encourage employees to use their time off benefit with not punishing them if they did not have the opportunity to use it all.

Policy roll out: Regardless of policy design, communicating this policy appropriately will ultimately determine how employees receive the benefit. Be sure it is clearly outlined int he employee handbook and/or company intranet, verbally explain the policy either individually or in a group, offer plenty of time for Q&A, and ensure employees understand their entitlements and responsibilities.