Most business leaders know that a number of companies (particularly large technology-based businesses) have been experimenting with a different way of managing paid time off (PTO). Rather than allocate a fixed number of vacation or personal hours according to length of employment and tied to compensation, companies are offering a self-managed, flexible benefit.
Employees are invited to take the amount of time they need away from the job, when they need it, with the understanding that they will still be evaluated according to performance metrics. Workers and prospective hires find the increased flexibility appealing.
For employers, with compensation no longer tied to the FTO of the employee, the employee is paid for FTO but no accruals are recorded for earned vacation. This eliminates the obligation to pay the employee for earned (but not taken) vacation when an employee separates from the business.
FTO may not be suitable to every work environment, but it may be worth considering for your company. In this overview, we’ll discuss the characteristics of enterprises where flexible PTO works best, as well as recommendations on developing the FTO Policy.
WHICH BUSINESSES ARE SUITED FOR FTO?
In general, in workplaces where the physical presence of employees during specified hours is critical to the company’s work, both the staff and firm would derive less benefit from FTO flexibility.
Daniel Ohmott of FMP Consulting studied companies that tried FTO and identified some traits that contribute to successful implementation:
Work organized around projects rather than day-to-day operations
Demanding work environments focused on results
Little or no rationale for responsibilities to be carried out at a specific location during a specific period of time
Performance-oriented culture in which employees understand that they will be evaluated on the basis of progress toward or attainment of goals
DEVELOPING AND IMPLEMENTING FTO POLICY
By providing employees with more freedom to manage the time they take off, FTO is intended to communicate respect and trust. The policy represents an adaptation to the evolving workplace.
Because a FTO system involves tradeoffs and potential drawbacks, it is essential to start with careful planning, good communication, and a well-drafted policy.
If your company is considering implementing a FTO policy, here are a few factors to keep in mind:
Avoid too much flexibility. One obvious concern is the possibility that employees will start taking so much time off that business operations will be affected. We recommend that clients avoid using the enticing term “unlimited PTO” to describe FTO, since it probably connotes more time off than the employer intends. We recommend that every policy state the “limit” of what the Company believes “reasonable” for FTO under the circumstances. For example, for a request of more than 2 weeks at a time, additional information from the employee is required before the request is considered. Manage expectations while adopting a flexible PTO system with a thorough review of performance policies.
Consider seniority. Trust and respect within an organization are typically earned. Consider whether all employees are eligible for FTO. Should the employee have worked for the company longer than “X” before they are eligible to take FTO? Many policies exclude certain employees (part-time, interns, etc) from FTO.
Clarify how much time you actually want employees to take. Most companies with FTO Policies find that, in the aggregate, workers take less time off after FTO is adopted. The culture of many businesses (in the US, anyway!) encourages employees to demonstrate loyalty or devotion by never taking time off. Given the unavoidable demands of modern life, not to mention the inevitability of health problems and the possibility of burnout in demanding occupations, employers should discourage this behavior. Before you jump to a FTO Policy, consider what you believe is actually reasonable for time off.
Evaluate compatibility with other leave policies. Do you intend that FTO take the place of all absences, or only vacation, personal time, and holidays? Separate out absences for serious illness, maternity, paternity, adoption, and foster care (regardless of whether you are subject to FMLA). FTO is paid time, most of these other absences are paid for only a portion of the absence.
Communicate your policy clearly through written policy. A California Appeals Court has held where a written FTO policy did not clearly state that vacation pay would not be paid on an employee’s separation, the Company was liable to pay an employee for her vacation time accrued, but not taken. As a result, the court stated that companies could address this issue by clearly explaining (in writing) that their version of paid time off should not be understood as an alternative form of compensation, but rather as part of a system established to ensure that its work schedules are flexible. While the case is only binding in California, we are recommending the inclusion of this fact in all our clients’ policies regardless of their location.
Are you implementing a FTO policy in your company? If yes, please be sure to reach out to Evelyn Ashley at firstname.lastname@example.org or Charlie Hawkins at email@example.com for information and a review of your policy prior to implementation.