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Thought Leadership In Action

How to Design a Leave Program That Works for Your Business

Time off from work makes it possible for your employees to relax and recharge, run important errands and spend time with their families. When it’s easy for them to leave work without hassle or confusion, they can come back to work refreshed and ready to tackle new challenges. A clear leave policy and a philosophy that reflects your company culture are key to ensuring people get the time off they need without holding the organization back. This checklist can help you identify your company’s philosophy toward time off and assemble a policy that works for everyone.

Look to Your Values

Some of the things your company stands for can serve as guideposts for your leave program. If your values include flexibility, work-life balance and terms such as “family friendly,” your employees will expect a generous and adaptable policy that makes it easy to request time off. A hard-charging culture that puts a priority on time spent in the office will signal to employees that time off might not be as easy to come by.

When leave policies are structured with an authentic alignment to company values, they can reinforce for employees and external stakeholders what the business stands for, says Peter Johnson, vice president of people operations at RizePoint, a compliance management software company. “We all want to know just what kind of a company we are working for, and more and more people would like to know just what kind of a business we are doing business with,” Johnson says.

“The most critical factor is company culture and values and how the leave program integrates into other HR policies and programs that define your organization’s employment brand strategy,” says Laura Kerekes, chief knowledge officer of ThinkHR, which provides HR solutions for insurance brokers. Employees are demanding flexibility in every aspect of the employment relationship, including how and where they get their work done, setting their daily work schedules, planning their learning and development, and planning their time off, she says. “Having more control over their benefits, including paid-time-off programs, is important,” Kerekes says.

As part of this step, determine what role time off will play at your organization: Are you using leave to compete for talent, to serve as a rewards program or to meet some other objective? Your values will help establish an objective for building a program that works for you.

Start with Requirements

Throughout the process, you’ll need to ensure your policy follows any applicable federal, state or local laws, so include those in your policy. When it comes to time off that is legislated or regulated, employers generally must comply and can’t get too creative, Kerekes says. “While there is no legal requirement to provide paid vacations or holidays, there are state and local rules regarding payments that are promised as well as new laws in various jurisdictions providing paid sick and parental time off,” she says. Workers’ compensation, jury or court duty, military or reserve duty leave, and so on may also be mandated by different rules.

In addition, company policies, contracts or agreements may affect different leave policies. “In some organizations, certain work rules or collective bargaining agreements may impact the paid-time-off policies an employer may offer,” Kerekes says.

Identify Kinds of Leave

Your policy should be explicit about the different kinds of leave you offer — vacation, sick leave, personal leave, sabbaticals and so on — and whether those days are paid or not. Some companies find it simpler to offer a general paid-time-off policy that provides a certain number of days to use at any time for any reason.

Some of the questions you’ll need to address include:
  • Whether to offer additional unpaid leave.“After analyzing your cultural, workforce, financial, legal and operational data and what the competition in your industry is offering, the next consideration is how much of the time off in your policy will be paid time off and whether you can allow employees to take additional unpaid time off,” Kerekes says. “The paid versus unpaid time off is largely determined by company culture, budget and competitive benchmarks. How the paid-time-off policy is structured depends on your culture, employee needs and what the competition is doing.”
  • Whether to just offer one PTO policy.This involves offering a lump sum of time that employees can manage instead of separate vacation plans, sick days, personal days, floating holidays and so on, Kerekes says. Employees can decide if they want to use the entire amount for a special event or use the time as needed for illness, appointments or unexpected emergencies, she says. Under this scenario, employers don’t have to track time in separate categories, and employees don’t have to account for the reasons for the days off, Kerekes says. “The downside for employers may be that employees generally will use the full PTO balance, whereas they may not have used all of the time available in their sick bank if they weren’t sick during the benefit year.” In addition, PTO accrued may be considered earned wages in some states and must be paid out upon termination.
  • Whether to offer unlimited paid time off.According to the Society for Human Resource Management, less than 1 percent of employers offered unlimited paid time off in 2014. But many employers considering it. “Employees seem to value paid time off that can be used for any type of absence without restriction,” says Lois Krause, practice leader of HR compliance for KardasLarson, an HR consulting firm. This kind of paid leave offers employees a lot of flexibility. At the same time, they can be challenging to administer with other mandates, such as FMLA or reimbursement for unused leave, so research your options carefully when considering such a plan.
  • Timing.When putting together your leave policy, you’ll need to consider what kind of calendar it will follow. Will it be based on a calendar year, benefit plan year or the employee’s anniversary date? Most employers use calendar year or benefit plan year for establishing PTO rules because that puts all employees on the same schedule, although this can require prorating of time-off benefit accruals for newly hired employees in the first year of employment.
  • How to grant time off.You’ll need to decide whether time off is earned through accrual or granted in a lump sum at a certain time of year.
  • How unused time off is managed.There will be employees who don’t use all their time off, and the policy must address that scenario. You may cap the time off at a certain amount until used, or carry it over to the next year. You’ll also need to determine whether employees are required to take their time off (keeping in mind that some states do not allow “use it or lose it” time-off policies), and whether it’s paid out at the end of the year or upon the end of employment.

Identify Who’s Eligible

Now that you’ve identified the kind of leave you offer, it’s time to figure out who’s eligible for leave, and when. It’s important to be specific about how people accrue time off, what is paid and what is unpaid, and the process for requesting and receiving approval for that time off, says Deanna Arnold, owner of Employers Advantage, which provides HR solutions and outsourcing.

Again, it comes down to culture, experts say. “The company culture and type of company typically determines whether everyone gets the same benefit, those with longer tenure earn more time or those with higher-level jobs receive more time off,” Kerekes says. “In my experience, most companies without unlimited-PTO plans typically use seniority as an eligibility criteria.”

Other options include working for a certain period before time off begins to accrue or employees have the chance to take time off, such as 90 days or six months, and earning more time off at a certain anniversary date, such as five years.

Communicate Policies Clearly

Managers and employees alike must understand how the policy works — who can take time off when, who approves it, what kinds of forms or notifications are required — so that it runs smoothly. If managers are turning down requests regularly, determine whether there’s a problem with understanding the program — or perhaps with your company’s workload.

This is especially important when it comes to unlimited PTO, Johnson says. “While it seems this type of policy requires less maintenance, many things must be done to ensure it has the intended effect, including clear communication and even training,” he says. “It takes a village to manage a leave policy, from the managers who approve, the team that backs up the vacationing employee, and sometimes the customers or partners who are left waiting.”

Conclusion

Time-off policies shouldn’t be an afterthought. Establishing a useful time-off policy that follows legal mandates while giving the company and its employees the flexibility they need will require a serious effort from HR managers and company leaders. Using the organization’s culture and values as a starting point for developing a time-off policy will help ensure any decisions support the company’s mission and, ultimately, its business outcomes.

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