Time off policies

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Vacation. Holidays. Sick time. PTO. Learn how small businesses are handling their employees’ time away from work

Ann Au understands that employees have lives and need time away from work. That’s why she’s created a flexible time-off policy for her two full-time employees that allows for some paid days away from work but one that is financially feasible for her business. “Being a small business, you have certain restrictions on what you can offer,” says Au, who has owned 2AU Limited in West Des Moines’ Valley Junction neighborhood for almost 25 years. “A lot of us can’t offer the same types of benefits as bigger companies. I try to make it as doable and
workable for my employees, as well as workable for the business.”

While Iowa law does not require companies to pay their employees for time away or to even offer time off from work, most business owners acknowledge time away results in more productivity, a better attitude and longer retention.

All businesses, even the smallest ones, should have a time-off policy, so all employees are treated fairly, Amanda Jansen, an employment law attorney with BrownWinick, says of paid time off.

Here are five questions to consider about employee time off and leave policies.

1. How do I stack up?

Overall, United States business owners lag behind their counterparts across the globe. It is the only advanced
economy that does not guarantee workers paid vacation, according to The Center for Economic and Policy Research (CEPR), a Washington, D.C., organization that conducts research and educates the public about social and economic policies that affect people’s lives.

The United States also does not require businesses to offer their employees any paid holidays, while some
countries offer at least six a year. The CEPR’s most recent report released in 2013 — one is conducted every six years and uses information from the 21 richest countries — showed that 23 percent of Americans have no paid vacation and no paid holidays. CEPR surveyed various governments to acquire the information and found that the average private sector worker receives 10 days of paid vacation and six paid holidays.

There’s also discrepancy based on salary range and size of the business. Half of those who make up the bottom
fourth of wage-earners receive vacation compared to 90 percent of the top fourth of wage-earners. Part-time
employees are also less likely to have paid vacation, as were those who work for a small business. Those lower wage earners and part-time workers who did earn vacation earned far less than higher-wage, full-time employees — nine days compared to 16. Five countries require employers to pay vacationing workers a small premium to cover vacation related expenses.

The Society for Human Resource Management (SHRM), which represents 285,000 members in 165 countries, surveyed U.S. companies with fewer than 100 employees about vacation days and sick leave in 2015. It found that 46 percent offered fewer than 10 paid vacation days, while 8 percent offered more than 15 days.

2. Why does it matter?

Ann Au, middle, understands her two employees, Sena Shebaro, left, and Emily
Baxter, have lives outside of work, so she’s developed a flexible time-off policy.

Paid time off is a critical factor both in recruiting quality candidates and in retaining current employees, according to Paychex, a company that provides human resources, payroll, retirement and insurance services for
companies with one to 1,000 employees.

“Even though there’s no legal requirement, it’s almost necessary to provide it as a package of employee benefits,” Jansen says. “Nobody is going to want to take a job with no paid time off unless they don’t have
any other employment options.”

In addition to employee retention, time off from work also has been shown to increase productivity and focus, workplace morale and improve health of employees, according to a 2014 study by Oxford Economics, a group of economists and analysts that forecast and analyze a variety of data for clients across the globe. The group surveyed almost 1,000 employees, most of whom received paid time off as part of their benefits package from their employer.

The study also found that when employees take time off from work, they benefit the economy with their spending at retail stores and through travel.

Sick time has been found to be just as important. SHRM’s report found that 32 percent offered no sick days, only paid time off, while 14 percent offered six to 10 days.

Many small-business owners reported that having just one person out for more than one day could cause a strain on the company, according to SHRM, because the company doesn’t have backup employees to do the work. Companies also reported they offered sick leave — 9 percent have unlimited sick time — because they don’t want workers coming into the office, exposing others, and potentially causing more missed time and less productivity.

3. What are my options?

A variety of methods are available for creating a PTO policy and for deciding what will be offered. The first step, Paychex suggests, is to determine an appropriate number of days off. This can be done by analyzing patterns in staffing needs and looking at the PTO policies of other companies in similar industries and size.

Schnoes & Co. in Waukee offers paid vacation and other unpaid days for its employees based upon an accrual method of so many hours per pay period.

“We’re very flexible,” says Jenni McKee, an accountant in the office. “We come and go as long as we get our work done.”

If McKee wants to leave early on a Friday, shehas the option of using any remaining vacation time or taking off without pay. The office’s two employees are paid hourly and keep track of their hours each week.

The business’ owner set the policy years ago, and it’s remained the same since McKee joined the staff nine years ago.

Most employers with whom she has worked base their paid time off according to how long the employee has been with the company, says Jansen, who helps employers write policies. New employees generally receive a week of paid time off, while longer-term employees can see upward of four weeks.

The amount of paid time off also depends upon the position. A professional high-level position or an executive will likely start at four to five weeks, while a laborer or retail worker will receive one, she says. Also, any industry where the employees work for a union will likely have higher allotments of paid time away from work.

Companies can then decide whether to enforce a rollover or “use-it-or-lose-it” time-off plan. Any carryover policy will need to include a maximum number of hours that can be held back for future use, while the latter can cause a rush of time-off requests at the end of the year as employees hurry to use their remaining time, Paychex warns.

Jenni McKee is an accountant at Schnoes & Co. in Waukee. She says she
appreciates her company’s flexible time-off policy.

Employers who offer paid time off will need to consider how it will be dispersed to employees. Will they receive all of their days at the start of the calendar year? Will they have to accrue days as they work? Will there be a formula based on years of service or hours worked?

They will need to decide whether the benefit will be given to all employees or only full-time employees. They’ll also consider whether to designate how many days can be used for vacation versus sick time versus personal days, or to have a set amount of paid days off that can be used at the employee’s discretion.

“It is moving toward going to just one category of paid time off or PTO… just because more and more employers are wanting to get out of the business of telling people what they can use their paid time for,” Jansen says.

For example, a healthy person should be able to take off the same amount of days throughout the year as
someone who has been ill and used their sick time, she says.

An employer could choose to not offer paid time off but to allow its employees to take days away from work as needed.

Jansen advises businesses against allowing employees to go in the hole and borrow against future time off. The business is out that money if the employee leaves the company for any reason.

If a smaller company decides it can’t afford to be short-staffed and offers paid time off, employers can still give their employees a break with a more flexible schedule, according to SHRM. This includes allowing employees to work from home or to leave early for personal or family obligations.

Au gives her employees some paid time away depending upon years of service but allows them to take other days off as they need. Employees and Au ask one another whether a particular day or days off would work for the others’ schedules and then take the time away from work.

“We’re pretty good about being flexible to accommodate each other’s needs or other time off,” she says.

Au says she understands employees have lives outside of work. If there is a time when Au and her two employees all want the same time off, she has closed the store in the past.

“I think it’s worked out well with trying to keep it flexible for everybody, so we can all have lives,” she says.

4. How do I get started?

Any time-off policy needs to be in a written format and given to employees so they understand it and can ask questions, according to Paychex. This can be done at an annual benefits review meeting or by including the information in an employee handbook. Employees will want to know how many hours/days off they’ll receive, how the PTO will be dispersed, how they will request time off, how much notice they must give in advance, how they receive approval, and what happens with unused time.

An attorney can review any policy to ensure it meets all wage and hour laws. Employers must then follow their own policies, practices or contracts regarding benefits, according to Iowa Workforce Development. If a company does not have an agreement with its employees regarding benefits, it is not required to pay employees for
sick time, vacation or holidays, IWD reports.

Amanda Jansen is an employment law
attorney at BrownWinick.

Jansen advises all time-off policies, paid or unpaid, be put in writing in an employee handbook, which is then signed by the employee, who acknowledges he or she has read it and had an opportunity to ask any questions.
Employers should then treat employees alike and not deviate away from the written policy for one-off situations because they could open themselves up to claims of discrimination, she says.

In addition, an employer is not required to pay an employee for unused vacation if he or she is fired or quits unless it is written into a contract or the company’s policies or procedures stipulate that action must be taken, according to IWD.

Jansen says this is often the biggest issue with a written PTO policy. An employee can be rewarded earned wages, liquidated damages and attorney fees if he or she is not paid out according to the policy upon leaving the company. A company can avoid this by not having a payout clause in its policy.

“They need to choose, and put it in the policy and follow it all of the time,” she says, adding that employers still need to follow their policy even in situations where they may be angry and had to fire an employee. If the policy states they will pay accrued PTO, then they must pay it.

The company’s policy also needs to explain when an employee can request vacation or time off and under what circumstances it might be declined. For example, if a business has a busy season such as accounting or tax preparing, the policy should explain that vacations won’t be allowed during that time.

Vacation requests at Schnoes & Co. require an employee to verify the other will be in the office to cover any work that needs to be done, McKee says.

“But we don’t have to do much in advance,” she says. “We can say: ‘Hey, I’m going to take tomorrow off or be gone next week.’ ”

McKee says she appreciates the flexibility of the policy and thinks it works well for her life.

5. Can I make changes?

Business owners say having a smaller company allows them more flexibility to work with their employees when they need time away.

A time-off policy sets the foundation for the start of the business and its future. And like all policies, it may need revision from time to time. Some business owners may decide their time off policy no longer works and update it. Others, might experience a growth in business or number of employees, and the policy will help them better manage time-off requests, Jansen says.

Jeff Lund, the manager of his family’s business Lund Motors in Waukee, says he’ll likely have to create a formal time-off policy for employees.

“We’ve been talking about a formal policy,” he says. “It needs to get done. If we grow, we need to have something in writing.”

Currently, the informal policy allows the shop’s two full-time employees to take a week of paid vacation and other time as needed on an unpaid basis.

“These guys have been here for a while, so thankfully on both their end and mine, they don’t take a lot of time off,” Lund says. Lund requires employees to schedule days off in advance and schedules the other employee and himself to cover in that person’s absence. ♦

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