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Managing Time Off

July 2 2010 - All U.S. employers in a recent survey conducted by WorldatWork offer paid time off work and three-quarters of respondents find it necessary to offer paid time off programs in order to compete in the labor market and have 'traditional' and non-traditional ways of doing so. The report, Paid Time Off Programs and Practices, was based on 1036 respondents from the HR, compensation and benefits departments of mostly large U.S. corporations. Lenny Sanicola, benefits practice leader for WorldatWork said:

"With the focus of the Administration and Congress on expanding access to work-life benefits such as paid leave programs, our research report shows that employers recognize the competitive advantage of offering paid time off and believe in continuing these programs, even through the recession."

"Time is the new currency, and employers remain committed to providing paid time off as a key employee benefit and reward.

The report defines three types of program:

  • Traditional - preferred by large organizations and used by 54% of companies. These programs give employees separate allotments for vacation, personal and sick days. A typical program offers 21 days (12 paid vacation plus nine sick days) on average for one to two years of service.
  • PTO bank-type - this model has increased in popularity from 28 per cent in 2002 to 40 per cent in 2010. Employees are given a pooled number of days off to be used as needed, although fixed holidays, jury duty and bereavement are treated separately. PTO bank programs average a total of 19 days.
  • Unlimited leave - allowing employees to take as many days as needed. This model is offered by mere one percent of organizations.

On average, employers offer nine paid statutory holidays each year.

Time Off Programs

A survey published by by Hewitt Associates in 2007 found that US companies are potentially losing millions of dollars in payroll expenses and productivity because they fail to effectively manage employees' time off. Employers may believe this is crucial for successful recruitment and retention but most do not maximize the value of this aspect of their benefits programs.

The survey of 421 companies found that only 11 per cent provided the same time-off programs across all employee groups, making them difficult to administer and manage. Only 57 per cent formally tracked sick days for exempt employees, and less than half (46 per cent) tracked personal days. Most did not know the financial cost associated with their employees' time away from work.

Three-quarters of companies could not provide an actual or estimated cost of their sick pay. Those that did estimated the potential cost to be 1 - 3 per cent of payroll. The report points out that for a company with US$450 million in payroll, such costs could be between US$4.5 million and US$13.5 million a year. When all types of paid time off are included (sickness, vacation and disability) the cost could reach an estimated 9 per cent of payroll, or US$40.5 million.

Kim Stattner, a principal in Hewitt's health management consulting practice said:

"Time-off programs are important tools for attracting and retaining employees, but they've gotten so complex that the administration of the programs typically overshadows this. It's critical that companies design holistic time-off programs that enable them to better manage, track and quantify the amount of time off that their employees take, especially since these programs are just as expensive - if not more so - as health care benefits, particularly when you factor in indirect costs such as overtime, temporary labor and employee morale. Doing so can potentially save companies millions of dollars in payroll expenses and, at the same time, positively impact employee productivity and satisfaction with their benefits."

The survey found that approximately 5 per cent of covered employees experienced short term disability in a year, usually lasting 40 - 42 days. The report estimates that a company with 20 000 employees would lose 42 000 days as a result, the equivalent of more than 160 employees not working for an entire year. Assuming an annual salary of US$50 000 and 260 workdays a year this would result in loss of productivity amounting to US$8 million.

Almost 80 per cent of companies surveyed tracked short term disability among exempt employees, and 87 per cent outsourced their short and/or long term disability programs. However, less than half (44 per cent) offered a return-to-work program for employees with work-related disabilities, and only 28 per cent had a program to manage non-occupational disabilities.

Kim Stattner commented:

"Short term disability can potentially cost companies millions of dollars in lost employee productivity, but tracking data and implementing return-to-work programs can help minimize costs. Companies with return-to-work programs more readily comply with doctors' restrictions, such as shorter hours or lifting limitations, which enables employees to get back to work sooner, leading to improved productivity and, often, earlier recovery. In addition, companies that track disability absence data can analyze it in conjunction with medical data, allowing them to identify co-morbidities that exist among disabled workers and enabling them to integrate disability with condition management programs."

The survey found that majority of employers offered vacation time based on length of service, ranging from a median of two weeks at hire to five weeks after 25 years. Nearly two-thirds offered standard holidays only, while 37 per cent also offered floating holidays.

Carol Sladek, a principal in Hewitt's talent and organization consulting practice said:

"Most employers offer separate 'buckets' of time for vacation, holidays, sick and personal time and apply a different mentality toward each of their time-off programs. In many cases, this type of compartmentalizing results in companies offering more time off to employees than intended."

A growing number of companies are offering employees paid time off (PTO) banks that often include a combination of vacation, personal days and incidental sick time with the aim of improving cost management and giving employees more flexibility. The current survey found that between 22 per cent and 32 per cent of companies offered PTO bank time compared to 18 per cent in 2000. Those with PTO banks provided approximately six additional days at most levels. The majority of schemes included time off on hiring, followed by additional time off after one year.

Carol Sladek added:

"PTO banks are becoming increasingly popular, because they often result in a win-win - allowing companies to more effectively manage their time-off programs and attract and engage talent, while providing employees more flexibility in taking time off."

The survey found that 65 per cent of companies did not use a disciplinary policy to discourage unscheduled incidental time off by exempt employees. Of those that did, 53 per cent used a verbal or written warning. One in five who said they use a disciplinary system said they had no formal policy in place. Only 9 per cent had incentive programs for employees who had not used all their sick time at the end of the year.

Kim Stattner said:

"Most companies do not have disciplinary policies or incentive programs in place for a variety of reasons - whether it's because they lack the ability to punish or reward employees for something they don't track or they feel strongly about 'incenting' people to show up for work when the paycheck should be reason enough. But Hewitt has found that in the right environments these types of programs can be extremely successful at influencing employee outcomes, thus boosting productivity."

The report concludes that creating and implementing a successful time-off program means viewing health, absence and disability as interconnected. It recommends that companies consider the following strategies:

  • "Take inventory" - Most time-off programs have been developed gradually over time. Make sure the purpose of the program meets the needs of current employees. The way in which elements are combined can have a significant positive impact.
  • "Identify the totality of time- off program costs and establish a formal tracking plan" - Companies have found it difficult to identify and assess the impact of complex programs. Identify the total associated costs and establish a formal plan for tracking and managing future costs.
  • "Review the design of your time-off program" - The design of a time-off program can minimize unscheduled time off. Employees are looking for more flexibility. Consider offering floating holidays or adding a PTO bank.
  • "Consider outsourcing short and/or long term disability" - More than half (51 per cent) of companies surveyed found that outsourcing short and/or long term disability reduced the length of absence, and 47 per cent experienced more effective application of return-to-work programs. Less incidence of disability was noted by 27 per cent of companies.

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