3 Tips for Setting Vacation Policies

Everyone wants to know their employer's vacation policies and rules for paid time off (PTO). Both are forms of compensation, so when you change them, employees will notice. Unfortunately, so will the law if you're not doing it right. Here are some tips to get started.

Consider your goal

Vacation or PTO policies are a reward for hard workers and keep employers competitive. But not every strategy is right for everyone. If cutting costs is a goal, then providing a set number of days off with a restrictive accrual policy can help you achieve it. On the other hand, you might lose a great employee to a competitor because their policy is less stringent.

The solution: get input from your employees at the outset. Set reasonable expectations about what to expect, then offer some options to gauge their response. The idea is to create a plan you'll all be happy with. 

Know the difference between vacation and PTO

PTO is generally looked at as “flexible” time—time that doesn't go toward vacation, sick leave, or holiday. But should you separate vacation and sick leave or not? The answer is not that simple, as there are drawbacks to both.

Some employees prefer PTO because of its flexibility—there are no restrictions as to how the time is used for vacation or illness. PTO is also seen as more fair to employees who are rarely sick or don't have children. For employers, PTO cuts the administrative task of tracking absences. Differences in state law matter, however, so be sure to do your research.

Also, keep in mind that vacation/PTO and medical/disability leave are not the same thing. While state and federal law do not require you to have certain policies around vacation or sick days, they do when it comes to medical and disability leave. The Family Medical Leave Act (FMLA) and certain state laws around leave for disability must be followed and have no relation to the amount of PTO of vacation an employee has.

Enforce your policy

Any policy that isn't followed or enforced is a risk. You have to prevent abuses but you also have to know how much time an employee has in case they quit or get fired. The law generally requires you to pay out unused vacation and PTO time. So if you haven't calculated it, an employee could claim they're owed more. 

Some workplaces decide to scrap vacation and PTO policies altogether, permitting employees to take as much time as they want (within reason, of course). Some say this motivates employees to be more productive, but others might feel it was a perk that got taken away.

Regardless of what policy you choose, be sure to put it in writing to avoid legal issues and track how it's used. Likewise, assess your policy regularly (at least once per year) to see if your company is staying competitive. After all, no employer wants to be an outlier.

Chas Rampenthal was previously general counsel at LegalZoom. This article first appeared on Inc.com.