PTO Policies in a Competitive Labor Market

Is your organization struggling to attract talent and retain skilled labor? If so, you’re clearly not alone. One tool that you may not be utilizing enough to counter these challenges and rise above your competitors is a well-coordinated paid time off (PTO) policy.

Let's explore the importance of PTO policies in today's competitive labor market and how you can create an effective PTO plan.

What is a PTO Policy, and How Does it Work?

PTO is a policy that allows employees to take paid leave for various reasons, including vacation, personal matters, and health issues. Unlike traditional leave policies that separate vacation and sick leave, PTO consolidates all types of leave into a single category. Employees accrue PTO over time and can use it at their discretion, providing greater flexibility and control over their work-life balance.

Why the Labor Shortage Pushes the Need for PTO Policies

There is a serious labor shortage in the construction industry, and home builders are feeling the impact. Estimates vary, but the U.S. is in the midst of a housing shortage of between 1.5 and 5.5 million units. However, the indusrtry lacks construction workers to build new homes to shrink the deficit and better align pricing and availability.

And while the number of construction job openings rate fell to 3.5% in June of this year, the lowest rate since March 2023, organizations within the industry must be doing what they can to not only attract talent but to hire skilled workers.

A competitive PTO policy can be a major differentiator in an intense labor market. As a result, companies prioritizing comprehensive and flexible PTO policies are better positioned to navigate the challenges of the labor shortage effectively.

Why Prioritize PTO Policies?

Without sufficient downtime, the risk of burnout is real. A Deloitte survey found that while 87 percent of professionals said they have passion for their jobs, nearly two-thirds also said they frequently feel stressed or frustrated on the job — 18 percent said they feel that way every day.

Prioritizing PTO policies within your organization is something potential employees look for when job hunting and is appreciated by employees who already have it. Practically, no one relishes the idea of leaving a job for one where they would have less time off.

The idea that giving employees time away from work can be a productivity-raising tool may seem counterintuitive at first glance. Yet, we’ve probably all experienced the benefits of having that time off to recover from an illness or mentally escape it all. This is how the construction industry is rethinking workforce development. A well-crafted PTO plan is a vital employee benefit and can be impactful for companies to attract and retain top talent in this challenging labor market for homebuilders.

What are the Benefits of PTO Policies?

The true benefits of implementing comprehensive PTO policies are often overlooked or undervalued by employers. Here are the benefits offered by a PTO policy:

Attracts Top Talent: An attractive PTO policy can be a deciding factor for candidates considering job offers. Offering more PTO days than competitors can also give your company an edge in recruiting top talent.
Offers Flexibility: Employees can use their PTO in a way that best suits their individual needs, whether it's for a planned vacation, a personal day, or unexpected circumstances. This flexibility can enhance job satisfaction and loyalty, as employees feel their personal needs are respected and accommodated by their employers.
Lessens Absenteeism: A well-structured PTO policy can help decrease unscheduled absences. Employees with a clear and generous PTO plan are more likely to plan their time off in advance rather than taking sudden sick days or personal leave without notice.
Boosts Productivity: Well-rested employees are more productive and engaged. For example, after a week-long vacation, employees often return to work with renewed energy and creativity.
Reduces Burnout: Regular time off helps prevent employee burnout and promotes mental well-being. For instance, allowing employees to take mental health days can prevent long-term stress and absenteeism.
Improves Retention: A generous PTO policy can improve employee retention rates. For instance, employees who feel valued and supported by their PTO policy are more likely to stay with the company long-term.
Provided Work-Life Balance: A comprehensive PTO policy supports employees in balancing their professional and personal lives. This balance is crucial for maintaining long-term job satisfaction and overall well-being.

What are the Types of Leave in PTO Policies?

PTO policies vary from company to company, and navigating through the various types of leave can sometimes be confusing. PTO policies can cover various types of leave, such as:

Vacation Leave
Sick Leave
Personal Leave
Parental Leave
Bereavement Leave
Volunteer Time Off

Types of PTO Policies and Procedures

Paid time off policies can vary greatly among different organizations. There are various PTO methods to choose from for your business, including:

Accrual-Based PTO: Employees earn PTO based on the number of hours worked or their length of service. This method rewards longevity and consistent attendance. For example, an employee might earn 1 hour of PTO for every 40 hours worked.
Unlimited PTO: Employees can take as much PTO as they need, provided they meet their work commitments. This method requires a high level of trust and a results-oriented culture. For instance, employees can take time off whenever necessary as long as they are achieving their performance goals.
Bank PTO: Employees have a certain number of days that can be used for various types of leave. This method consolidates all types of leave into a single bank, offering greater flexibility. For example, an employee might have 20 days in their PTO bank to use as they see fit throughout the year.

Legal Compliance Considerations for PTO Policies

Creating a PTO policy requires understanding and complying with various legal requirements, which may include:

Federal Laws: While there is no federal requirement for PTO, laws such as the Family and Medical Leave Act (FMLA) provide guidelines for unpaid leave. For example, FMLA allows eligible employees to take up to 12 weeks of unpaid, job-protected annual leave for specified family and medical reasons.
State Laws: Some states have specific laws mandating paid sick leave or other types of leave. For example, California law requires employers to provide at least 24 hours or three days of paid sick leave per year to their employees.
Local Laws: Local jurisdictions may have additional requirements for paid leave. For instance, the city of San Francisco requires employers to provide paid parental leave to employees.
Carryover Rules: These are regulations on whether unused PTO can be carried over to the next year or must be forfeited. Some states mandate that employees must be allowed to carry over a certain amount of unused PTO each year.
Payment Upon Termination: This outlines the conditions under which unused PTO will be paid out upon an employee's termination. For example, the policy might state that all accrued but unused PTO will be paid out when an employee leaves the company.

5 Vital PTO Policy Procedures

Organizations often overlook the importance of well-defined PTO policy procedures, leading to confusion, disputes, and decreased employee satisfaction. When creating a PTO policy, consider these vital procedures:

Accrual Rates: Define how PTO is accrued (e.g., hourly, bi-weekly, monthly) and the rate at which it is earned. For example, employees might earn 4 hours of PTO for every 80 hours worked.
Availability: Specifies when accrued PTO becomes available for use. Some policies may allow immediate use of accrued PTO, while others may require a waiting period.
Rollover: Determines if unused PTO can be carried over to the next year and if there is a cap on the total amount of PTO an employee can accrue. For example, a policy might allow employees to carry over up to 40 hours of unused PTO each year, with a maximum accrual cap of 200 hours.
Scheduling Requirements: Establish rules for requesting and scheduling PTO, including advance notice requirements and blackout periods. It is best to request PTO two weeks in advance for time off, that is, two or three days long, or for planned PTO such as vacations. However, for unexpected situations like sick leave or bereavement, being flexible and understanding is key, as these things can occur at inconvenient times.
Payment Upon Termination: Outlines the conditions under which unused PTO will be paid out upon an employee's termination. For example, the policy might state that all accrued but unused PTO will be paid out when an employee leaves the company.

How to Create a Competitive PTO Policy

Alt text: Photo by Andrea Piacquadio from Pexels

There is no “one size fits all” PTO approach, especially in the construction industry, where worker availability and needs are often determined by project workload. However, the most effective PTO plans share some similarities. Here are some guidelines on how you can create an effective PTO policy:

Assess Business Needs

Understand the needs of your business and employees to determine the appropriate amount and structure of PTO. For instance, how the PTO policies break down depends on the company, its needs, and the needs of its employees. Some combine all types of PTO in one giant “bucket” for employees to use as they like, while others break it down into a specific number of days for sick time, planned vacation time, and personal days.

Other variables companies must decide on are whether to have PTO accrue over a year versus offering a set number of days at the start of the year and whether to allow employees to carry over unused time off to the following year. Additionally, factors such as industry standards, employee demographics, and operational requirements should be considered.

Benchmark Against Competitors

Research PTO policies of similar companies in your industry to ensure competitiveness. Increasingly, companies are starting to include time for “mental health” days in their PTO policies. Some are also including non-traditional leaves of absence, such as for bereavement or family-centric events, such as a miscarriage, as part of their PTO plan. Additionally, different cities and states may have specific rules regarding employee PTO, impacting a plan’s design.

Effective policies stress the importance of flexibility for their employees when necessary. This could be for unforeseen circumstances or could focus on an adjustment of policies to align with an employee’s situation. Stressing flexibility to your employees is crucial.

Establish Guidelines

Create a draft policy that outlines accrual rates, usage guidelines, approval processes, and legal compliance. In addition to a leave, there are specific variables companies must consider when building a PTO policy. Will an employer’s PTO accrue over the year, or will employees be given a set number of PTO days to use at the beginning? Detail how PTO will be accrued, how employees can request it, and any limitations on its use.

Another variable is whether to allow employees to carry over unused time to the following year. It’s important for companies to be transparent and make sure their employees know how PTO accrues and if their time off can be carried over.

Engage with Stakeholders

Employers should review any specific guidelines around PTO usage with their employees. For example, are there any periods or busy seasons when employees can’t take PTO? Are there any particular homebuilding projects that employees cannot take off? Is there a maximum number of PTO days that can be used consecutively? Employees are seeking transparency and guardrails when it comes to their PTO plan.

Communicate the Policy

Clearly communicate the final policy to all employees and include it in the employee handbook. The best PTO plan is useless if employees don’t understand what they’re entitled to. The plan must be understandable and clearly communicated to ensure it serves the company’s and its employees’ interests.

Ideally, PTO information will be readily accessible to employees in multiple formats. For example, sharing news about the plan through written or emailed memos and a page on the company intranet makes it more likely everyone will see the information, regardless of which platforms they prefer.

When making a policy change, whenever possible, include information from employee surveys or external data to support the change’s necessity. This can prevent employee questions or concerns and show that the company is thoughtful and deliberate in managing its PTO policy.

5 Best Practices for PTO Policies

To ensure your PTO policy is effective and beneficial for both the company and employees, consider these five best practices:

Encourage Time Off: Promote the use of PTO to prevent burnout and ensure employees take the necessary time to recharge.
Monitor Usage: Regularly track PTO usage to identify patterns and address potential issues, such as employees not taking enough time off or excessive absenteeism. Use HR software to monitor PTO accrual and usage, generating reports to review with management.
Review and Update Regularly: Regularly review and update the PTO policy to ensure it remains competitive and compliant with legal requirements. Also, annually review the PTO policy to align with industry standards and incorporate employee feedback.
Align with Company Culture: Ensure the PTO policy reflects the company’s culture and values. For example, if your company values work-life balance, design a PTO policy that provides generous leave options and flexible scheduling.
Lead by Example: It’s essential that upper management visibly buys into and supports the PTO policy. Leadership should make it clear that they understand the need for employees to get time off and expect PTO to be used. If employees think taking time off is frowned upon, the plan loses its effectiveness in retaining talent.

FAQs About PTO Policies

Let's now address some of the most common queries regarding PTO policies:

What is the Most Common PTO Policy?

PTO plans vary, but traditional leave policies generally offer 30 paid days off per year. This includes ten vacation days, eight sick days, two personal days, and ten paid holidays. However, most PTO policies give employees between 15 and 20 days off along with company-observed holidays.

Are We Required To Give Pto To Part-Time Employees Or Contractors?

Employers must provide paid sick leave in several states, but PTO isn't required anywhere. Extending benefits to part-time workers and contractors can prevent them from feeling like second-class employees. Doing so can also help businesses attract and retain top talent who prefer non-full-time roles.

What is a Typical PTO Accrual Rate?

For private sector employees with over five years of service, the average PTO is 15 days. This means they accrue an average of 1.25 days per month. Consider these statistics when determining a fair accrual rate for your company.