Paid Time Off – Writing a New Vacation Policy?

Mercer PeoplePro Blog Paid Time Off

Paid Time Off Policy — What to Consider


There are a variety of reasons for giving employees paid time off — employee morale, productivity, creativity, employee wellness and a general rejuvenation, resulting in a more engaged employee population. Vacation time is highly prized by all employees and candidates so, making sure your policy meets their needs is important.

There are multiple questions when beginning to codify your vacation policy. The first thing to consider is whether you want to lump vacation accrual into a larger bank of time, usually called Paid Time off (PTO).

The Pros of Paid Time Off

Some organizations lump vacation time and, in some cases, floating holidays and personal days into a PTO policy allowing people to use this “bank of time” for either sick leave or vacation. The theory behind that is that it allows people flexibility to manage their time. Additionally, there are administrative benefits since there is only one bank of time and it is not broken into multiple blocks of time.

The Cons of Paid Time Off

Conversely, some reasons employers and employees do not like PTO is that employees may begin to come into work even when they are sick. This happens because many don’t want to use, what they see as vacation time, when not feeling well. As a result, under a PTO system, employees usually use more time away as they consider all PTO as vacation time.

There are now paid sick time laws that can affect how much time a business needs to offer and track. But one of the really big outcomes is that any accrued time is treated like accrued vacation time and many states must be “paid out” if the employee leaves the company.

Decision Time

If you decide to go with a PTO arrangement, be sure to incorporate enough time so that people who are eligible, by law, to accrue paid sick time are covered appropriately. If however, you decide to have different blocks of time — sick time, vacation time, personal time, be sure that you are in alignment with other business you compete with for talent.


Traditionally, with separate blocks of time, the accrual of vacation time increases after a certain number of years of service. One example might be you accrue 15 days, from date of hire or starting on January 1, and after 4 full years – at the start of your 5th year you accrue 20 days, then after 10 years 25 days. Additionally, you will need to decide if people can carryover any vacation time (this is the same consideration for PTO.)


Carryover is basically allowing for a certain amount of unused accrued time at the end of the year to be “carried over” to the next accrual year. Most companies with a carryover provision usually prescribe, but may say that carryover time must be used within the first 3 months of the year. When deciding whether to have rollover time, make sure you give enough time for people to reasonably use the time especially if that time coincides with a busy or vacation restricted time on your business.


Once you have grappled with and decided what to do, make sure you lay out a clear communication plan so people know how to request and receive approval for any paid time away. Using vacation time is essential to your employees’ health, wellbeing and productivity at work. Encourage them to take time to rejuvenate and they will return the “favor” with a more productive and creative mindset.

See you at the beach!

HR Expertise On Demand

Need help creating a policy for your organization? Don’t worry; when it comes to HR we’ve got you covered. Schedule an appointment today at Mercer PeoplePro — we’re standing by and ready to assist

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Written by Mercer PeoplePro Growing Your Business specialist, Ruth Baylis

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