July 27, 2021
PTO Policy Best Practices: To Rollover or Not to Rollover?

No matter how much we love our jobs, we all need a break. It may be a day or two, it may be a week or two. Either way, vacation time is critical—which is why employers must establish a vacation or PTO policy that is fair and encourages employees to take leisure days.

According to a SHRM survey, from 88 to 94% of HR professionals think that taking vacation is either “extremely” or “very important” for a variety of factors related to talent management, including:

  • Morale
  • Wellness
  • Performance
  • Retention
  • Positive culture
  • Productivity

Not to mention, 70% agree that taking time off is “extremely” or “very important” for inspiring creativity.

Unfortunately, many employees fail to take all their vacation days, which can bring down performance and morale. Many people at companies with unlimited rollover try to save their days for the next year, reserving it for a longer or simply more vacation.

So, what should your policy be? How do you encourage staff to take vacation without seeming inflexible? While some organizations have specific policies for vacation time and others group vacation and sick time into one PTO policy, employers have options (contingent upon state laws), including:

  • Use it or lose it time off policy
  • Limited rollover policy
  • Unlimited PTO policy

Of course, if you allow unlimited PTO, you don’t have to worry about it. But If you place a cap, you also need to consider unused time off and how to manage it.

Let’s take a closer look at the pros and cons of the first two options, use it or lose it, and limited rollover policies.

What is a Use It or Lose It Vacation Policy?

A use it or lose it PTO policy limits employees’ time off by prohibiting any rollover. This typically involves resetting an employee’s PTO balance at the end of the year (either calendar year or anniversary year, depending on how your company operates). In this case, employees either have to use their accrued time off or lose it.

If you are considering a no-rollover policy, you should first check your state’s laws because:

  • Some states do not allow employers to have use it or lose it time-off policy at all; and
  • Other states require employers to provide the employee with a reasonable opportunity to use the PTO, but this is arguable and opens your company up to possible lawsuits.

Pros of a No-Rollover Policy

A use it or lose it policy could work in the perfect company culture, where everyone embraces taking time off and disconnecting entirely from work. After all, this type of policy:

  • Encourages employees to use all of their time off.
  • Incentivizes employees to take true vacations and get much-needed R & R when they normally may not.
  • Means you don’t have to pay out unused vacation time if the employee is terminated (although this is a negative for employees).
  •  Mitigates employees taking extended periods of vacation since they can’t accumulate PTO.

Cons of a No-Rollover Policy

We all know, however, that there is no such thing as a perfect workplace. Creating a no-rollover policy:

  • Could penalize employees who work hard to get their jobs done well and on time.
  • May cause employees to take unused vacation time at the last minute, all at the same time, leaving you understaffed.
  • Can give a negative impression of your company culture.
  • Essentially takes benefits away from employees, which is never a good look.

Capped PTO Accrual & Rollover Policy

If your company is looking for more of a happy medium, you can limit how much time off employees can earn so they don’t accumulate an unlimited amount. 

With this system, you set the threshold of how much rollover time an employee can accumulate. It can be the same as the number of hours the employee earns per year or slightly more. Let’s say:

  • Employees earn 80 hours per year.
  • The cap is set at 80 hours.
  • They cannot earn more than 80 hours per year.

For the rollover portion of the example above, you might say:

  • Employees can roll over a maximum of one year of unused time (i.e., 80 hours).
  • The cap is 160 hours (80 + 80 = 160).
  • They stop accumulating more time off after 160 hours.

This policy encourages employees to use their PTO but doesn’t take away what they’ve already earned. It allows them to take more vacation time if they did not have the opportunity the year before.

Tips for Leaders

  • Work with your HR team to stay abreast of whether or not employees are using their PTO. If you find they are not, research why.
  • Foster a company culture that values taking time off! Ensure your vacation policy aligns with the culture you are working to create and that it is being communicated and applied accurately and fairly throughout the company.
  • Stay in tune with your employees. Be aware of their workloads and responsibilities, and make sure managers and leaders encourage their teams to take vacation. Communicate this regularly so that workers do not feel guilty or think there is a stigma around requesting vacation time.

Everyone needs to unplug occasionally. When you demonstrate to employees that it is not just ok but encouraged to take quality vacation time, you help boost morale and productivity. Regular time off is certainly worth more engaged and productive employees!

If you need guidance in developing a new PTO policy or evaluating your current one, contact BlueLion today at 603-818-4131 or info@bluelionllc.com. Our HR experts will be happy to help you conduct a policy review!

The information on this website, including its newsletters, is not, nor is it intended to be, legal advice. You should contact an attorney or HR specialist for advice on your individual situation.

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