A Paid Time Off Policy Pays off in the Long Run, Try it and See

There’s more to life than work, and there’s more to business than productivity. That’s why work life balance is so important in today’s workplaces. Today’s hyper-connected world makes it far more difficult for your employees to stop feeling on call and leave room for aspects of their life outside of business. That’s why employers should have a an outlined vacation, or paid time off policy in place for all employees.

Paid Time off at the beach

Paid time off can be so relaxing.

Vacation vs. PTO: What’s the Difference?

Vacation and PTO, or Paid Time Off, aren’t just different names for the same thing. In fact, what you call the time your employees have holiday from work effects the laws that govern the time off. States have different laws for PTO and vacation time. As an employer, you’ll need to be compliant with laws regarding:

Whether vacation time is considered to be earned wages (and cannot be forfeited) Whether an employer can have a “use it or lose it” policy Whether vacation wages must be paid out upon termination Whether an employer’s policy sets the rules for vacation and PTO

What happens to unused time after employment also varies state to state and based on your policy. Since different laws apply to each type of policy, you should have a good, clear policy in place for people to take time off.

So, what does a bad policy look like?

Bad Policies for Paid Time Off

There are certain businesses that guilt people out of taking time off. In a recent article on Entrepreneur,  a sales team assistant wrote about how her team was understaffed and overworked. At the end of her first year, she jokingly said, ‘That’s a wrap, it’s vacation time.’ And was surprised to see her manager shake his head in disapproval. Apparently, team members were often shamed out of taking allotted vacation.

Paid time off in Port Douglas, Australia

Use paid time off for a day at the beach


Why is this a bad idea? The explanation lies within what happened at her former company. Burnt out workers eventually were laid off. Eventually, the company went kaput. Other negative implications for not having a proper vacation or paid time off policy are as follows:

Low Employee Retention Rate

People don’t want to feel exhausted all of the time. If there is a different company willing to pay them equal or a bit less for their skill set, you can bet they’re on the lookout to find that company. When they do find it, they’ll be gone quicker than you can say, “But we’ll give you a raise!”

Paid time off in Yellowstone national park

Use Paid time off to visit Natural Wonders

Low employee retention ends up costing your small business a lot of hard earned cash. Why? Because to find good employees is quite the feat. It takes up a lot of time for a manager to find the right fit through recruiting processes. You know, time that could be doing stuff that’ll affect your bottom line. To top it off, they’ll have to spend a lot of time and resources to train the person that they do end up hiring.

Difficulty Recruiting

The word gets out when you don’t treat your employees well. If you have a top performer on a happy team, you can ask if she has any connections from a previous job or within her network that would like a job. If she’s miserable, however, she won’t wish the job on her worst enemy.

difficulty recruiting when you don't have a good paid time off policy

So far, without a good vacation policy, you could risk losing employees and not being able to find more. Yikes. But what else?

High Absenteeism

People need time off, and they’ll likely get it one way or another. If they’re not allotted an appropriate about of paid time off or vacation time, they’ll either need to take a ‘sick day’ for mental health reasons, or they’ll work themselves sick!

Without paid time off, employees will take more sick days

Are you seeing a trend here? Those who don’t allow vacation time within their enterprise are doing so because they want their employees to work more and work harder. But, a result of this style of management leads you to have less employees, have a hard time finding more workers, and the ones you do have ending up skipping out on work. Counter intuitive, eh? Seems like employees more than want vacation time, they need it.

Why Employees need Vacation

Vacation time is better for the business

It pays off to be generous with your PTO policy. When you offer benefits like this, you tap into top talent and are able to hire quality employees. Those employees don’t suffer from burnout, and they feel supported in their personal life when you allow extra room for their outside-of-work responsibilities. If they feel supported, they’re more likely to have loyalty and commitment to your business.

Time away from work is good for people

Not only does a good paid time off policy reduce burnout, it also allows people to be more creative when they return. People are most creative when they’ve had time to get away from the grind a bit. Even Bill Gates is known for taking his Think Weeks. If your employees are using that time off to travel somewhere new, they’ll leave with new experiences to fuel ideas.

Taking some time for health with paid time off

And there’s more. The impact that taking a vacation has on one’s mind is profound. Studies have shown that out of those who take a vacation, most come back to the workplace with a better life perspective and more motivation to achieve their goals. Even if it’s as brief as 24 hours off!

Despite the benefits, many people are still reluctant to take time off from work. So, what’s a small business owner to do?

Encourage Vacation Time

The benefits of PTO or vacation time are clear. For the business and for the employees! But, oftentimes there are employees that just don’t want to take a break. Why?

There are several reasons that employees don’t take vacation time. Some worry that they won’t seem like hard workers, thus they’ll be overlooked for a promotion. Some are worried about job security. Others just like their daily routine. And sometimes it’s just a case of people not remembering to treat themselves. And no one likes a martyr, that makes for a toxic employee.

Toxic Employees

So, sometimes you have to encourage them to take a break. Even if you’re short staffed or it’ll put a little more on your plate.

How to Encourage Employees to Take Time off

Encourage employees to take paid time off

There are a few ways that will encourage your employees to take time off. This includes, but isn’t limited to:

  1. Take time off for yourself! Always practice what you preach, because the boss sets the tone for the rest of the business.
  2. Establish good communication with employees so that you’re aware of the possibility of a burnout occurring.
  3. Allow employees to have flexibility that suits the demands of their life.
  4. Sometimes a change of terms makes all of the difference. If you’re only allotting time for ‘sick days’ some employees may not feel that they can use this for personal times that require time off.
  5. Show them some of the photos in this post. Tempting, aren’t they? Ha!
  6. Limit vacation accumulation and rollovers. Employees whould not be rewarded by hoarding paid time off.
  7. Have an outlined vacation or paid time off policy, so that your employees will be very clear of what the expectations are.

Have an Outlined Vacation Policy

As an employer, you don’t have to have a paid time off or vacation policy. But, as we’ve outlined, it’s better to do so for the quality of life of your employees as well as the quality of work you will receive from them.

Paid time off in the Blue Mountains of Australia

Since it will encourage employees to take time off, there should be an outlined policy in place for your small business.

How Our Paid Time Off Policy Evolved

As a 50+ year-old small business, we have changed a lot over the years. In the beginning, we didn’t have any kind of paid time off policy. Time away from work just wasn’t paid.

We eventually started with regular vacation policy. This allowed each employee to take a specific number of vacation and sick days per years worked. The number of vacation days increased with seniority. It wasn’t until much later that we began to use the term PTO, or paid time off.  Most of our employees are hourly workers and having a paid time off policy makes more sense for this type of worker. Paid time off can be used on an hourly basis, while vacation days traditionally don’t.

Back when we had a traditional vacation time framing, we also allowed sick days. When we changed things around, we eliminated sick days and instead added more Paid Time Off allowances. This was a values-based decision for our company. Reliability is our number one value and the nature of the work we do. As an answering service, our clients expect us to be reliable and show up to answer the phone when they need us. We have to expect the same of our employees.

Planned Time Away

It was at this point that we also instituted the idea of planned time away, and PTO could only be used for planned time. Again, values. It is important that we are there for our clients, and to do that we need our team there for us. Unplanned time will still happen, but we can work towards reducing it. We reduce unplanned time off in numerous ways, one of the best ways to do this is not allow paid time off to be used when someone was absent or had unplanned time away from work.

With our old vacation policy, people would earn huge amounts of vacation time on their work anniversaries.  The first paid time off policy we had was structured in a similar way. Annually people would get large sums of PTO that would be used at once. Depending on seniority they could earn anywhere between 40 – 80 hours annually.

Paid Time Off 2.0 – No More Large Annual Sums Of Time Off

Eventually these lump sums became problematic. Our employees wanted to take time off right away.  People didn’t save time for other smaller dates they would need later in the year, like an out of town family reunion, dentist appointment, or a mental health day.

We needed something different.


Save time by hiring a small business answering service

With our new paid time off policy 2.0,  employees earned the same amount of time off. But instead of a large sum at once, they earned it slowly. They earn a few hours every pay period throughout the year. We did this so people wouldn’t think they had to take a month-long vacation at one time.

The paid time off policy went from an annual accrual period to a per-pay-period accrual. This was put in place to encourage our employees to take several smaller vacations and periods away from work through out the year. We believed this will have a better effect on reducing burnout than one big vacation.

Paid Time Off 2.5 – Earning time based on hours worked

Eventually we started to see some flaws with our paid time off policy. We rewarded people the same regardless to their commitment to the company.


Bob works 40 hours every week and earns 3.06 hours of paid time off each pay period.

Susan works 32 hours every week and earns 3.06 hours of paid time off each pay period.

Essentially Susan Earned 0.0478 hours of PTO for every hour she worked but Bob only earned 0.0382 for ever hour he worked.


No matter how many hours someone worked they still earned the same amount of PTO. This seemed wrong to us. We love vacation and planned time away from work. At the same time as a 24/7 answering service, we also love employees who enjoy working.

We changed again. Now employees earn paid time off for every hour they work. This works great for part time employees too.

Employees still earn more time with seniority. Actually we increased the maximum amount of PTO an employee can earn in one year to four weeks!

If you don’t have a good payroll provider who can track paid time off. Any type of policy other annual accrual could become very complicated. We use Gusto for payroll and paid time off tracking.


When did the change go into effect?

We switched at the beginning of the year to this new policy where people will earn time for each hour they work. It rewards people who work more, which is something we value. So when you ask someone to work on their day off they not only do they get more hours, but they also earn more PTO. People take more time away more often, which is good for them and good for the company.

As normal with any change employees were resistant at first. But after some time and getting use to it, the team really loves it! It is now one of their favorite benefits.

What about Holidays?

Holiday answering service fees photo by https://www.flickr.com/photos/chrisyarzab/

Holidays can be some of our busiest days. Those are days in which our clients are far less likely to be able to get to their own phones, so they rely on us the most. When it comes to holidays, they’re generally worked, paid holidays. We’ll discuss that in another post.


Other Paid Time Off Policies

Sometimes it helps to see other models that work.

Take for instance, IKEA, the Swedish retailer well known  around the world for their low-cost, build-your-own furniture has a paid time off similar to ours. It was mentioned in Glassdoor’s 25 highest rated companies, and they, too, allow their employees to use small increments of  PTO if they desire. It’s also noted that their parental leave is unlike the norm for hourly employees.

But, according to the list, the highest rated company for paid time off is Amegen, a biotechnology company in California. At Amgen, employees call the benefits “too good to be true.”

Apply this to your small business

As you can see, applying a paid time off policy has helped us with recruiting new employees. In general, it helps businesses have high employee retention rate and less absenteeism. And for the employees, the benefits are numerous. Employees return more creative, goal oriented, motivated, relaxed–need we go on?!

Now, give this a try…

Create a clear vacation or paid time off policy and encourage your employees to take advantage of it by using some of the tips that we’ve outlined above. Then, reap the benefits of a rested team!

If you are a Texas based employer, Texas Work Force has some great sample policies to help you get started. If you are outside of the Lone Star State, these samples would still be a good starting place. Check out the information they have on vacation & sick leave and accrued leave payouts.