Creating A Paid Time Off Policy For Your Contracting Business
If you’re like most owners in this business, you’re juggling a million things at once and the last thing you want to worry about is your employees taking time off. But it’s important both for your people and your bottom line. If you don’t already have a paid time off (PTO) policy in place, now’s the time to build one.
In this article, we’re going to walk you through all the variables of a PTO policy and we’re going to give you some examples you can put into use. But first, we’re going to look at the reasons why you should offer PTO in the first place. We’ll also review the pros and cons of the most common types of time off, and we’ll touch on what the government legislation requires of you.
Note: This article was written specifically for small construction firms in the USA, however no matter where you are, or in what industry, the concepts outlined here will help you build a time off policy for your own company.
Why do I need a PTO policy?
Paid time off is a major benefit for employers and employees alike. PTO can enhance a team’s morale and productivity, attract and retain high performers, and help prevent costly accidents.
A PTO policy outlines the key responsibilities of each party to ensure everyone is aligned.
Some Major Benefits Of A Paid Time Off Policy:
Attract and Retain High Quality Staff
This industry relies heavily on its skilled workforce for profitability and growth, and the cost of sourcing and onboarding new team-members is quite high. With average employee turnover in construction at 21%, many owners have implemented PTO as a way to add value for their current and prospective workers, and in doing so have increased their competitive advantage.
Enhance Morale and Productivity
According to research discussed in Psychology Today, workers who take vacation are less stressed, happier, more productive, more focused, and produce higher quality output. They are also more likely to bond with their leaders and take pride in their work.
However, over half of Americans don’t take the vacation they have accrued. A PTO policy that forces mandatory vacation can help ensure staff get the break they need, and at the same time, help limit liability from unused, accrued PTO.
Prevent Costly Accidents
The construction industry accounts for roughly 20% of all workplace deaths, and according to the National Safety Council, 13% of all job-site injuries are the result of worker fatigue. Two top risk factors of fatigue are commonplace in our day to day operations - long shifts spread across long weeks, and physically demanding work.
In addition to the obvious human cost of accidents, the financial impacts of injuries can include medical fees, compensation premiums, property losses, and liability. There are also many potential indirect costs relating to lost productivity, replacement of materials and people, delays, standby costs, and overtime to get back on track.
In summary, a PTO policy that lets your team members disengage and relax will help ensure they’re well-rested, motivated, and ready to perform, and that can go a long way to reducing expensive job-site injuries.
What are the most popular types of PTO?
In general, contractors are offering their teams one of the following:
In this fairly traditional format, employees have (based on eligibility rules defined by the employer) a set number of days off for vacation, a set number of sick days, and a set number of personal days.
Depending on the needs of the employer, the amount of days of each type can vary. For reference, the Society of Human Resource Management recommends that a PTO policy provide two work weeks of vacation (ten days) in addition to eight sick days, two personal days and up to ten paid holidays.
Many employers offer the full allotment of sick and vacation days up front which employees can then use as they require.
In other cases, employees begin the year at zero and accrue (earn) their time off based on a schedule set by the employer. Often the rate at which an employee can accrue increases with tenure.
• Tracking provides potentially useful data on when and why employees take time off.
• Reduced liability - unlike PTO banks, only unused vacation represents a liability.
• Prevents workers from using all their time off for vacation and not having time when they get sick (see PTO Bank below).
• Increased workload required for tracking each employee's PTO accrual and use.
• Not very flexible for workers.
The PTO Bank
The PTO Bank combines each employee’s vacation days, sick days, and personal days into a single pool (bank) of hours which they can use whenever and for whatever they want (provided the timing fits business needs.)
Similar to the split policy, workers receive their allotment either up front or through accrual.
• Reduced management workload, requiring tracking of just one element.
• Added flexibility for workers.
• Enhanced perceived value for new recruits.
• Less unscheduled absences.
• Reduces the chance of workers lying about being sick.
• Removes insight into why workers are taking time off.
• Increased probability of people coming to work sick to avoid using a ‘vacation’ day.
• Increased liability - Many states require unused PTO balances to be paid out in the event an employee leaves (unlike only vacation days with the split type policy).
This is the simplest type of the three, requiring almost no tracking by management. Similar to a PTO bank in that there’s no differentiation between vacation and sick leave, this policy goes a step further and eliminates limits altogether.
With an unlimited PTO policy, workers have the freedom to choose when and for how long they want to take time off, provided they do so within a set framework, and provided they get their work done on time. It’s not a free-for-all; there are still rules that govern how time off should be requested.
This type of PTO is best for a team of professionals who can work well on their own and who can be depended on to get their work done on time.
• Has the highest value profile for workers and recruits.
• Offers the highest flexibility.
• Because workers can take time off more regularly, they’re more rested and productive.
• Almost no administration time.
• Reduces the chance of workers coming to work sick which in turn reduces secondary absenteeism.
• Numerous studies have shown that workers with unlimited time off end up taking less days than other policies because of a fear of declaring that they have free time available. To combat this, some companies have added a clause in the PTO policy requiring workers take at least one solid week off per year.
• Can lead to abuse by individuals in turn causing understaffing issues, hampering collaboration, etc. In other words, this type of policy relies heavily on trusting employees to be responsible and considerate of their team.
While PTO banks have become the most common option offered by employers, it’s up to you which type of policy works best for your situation and what the conditions will be. You’ll also need to define who is eligible for time off, how time off will be awarded (lump or accrual), and several other elements which we’ll review shortly.
What Legistlation Is Applicable?
According to the Fair Labor Standards Act, there is no federal legislation requiring companies small or large to pay employees for any time not spent working, and that includes sick days, vacation, and holidays.
However, a number of states do have laws in place requiring companies to offer paid sick leave (see image below).
Additionally, various counties, municipalities, and cities have their own rules and regulations. In many cases legislation exists to force companies who do decide to offer compensation to offer it in a fair manner, across the board.
There are also a few leave types with special conditions:
• Bereavement (a death in the family): There are no federal laws requiring employees provide bereavement leave (paid or not). At the state level, only Oregon requires leave be given (up to two weeks), and there is no expectation of payment.
• Long-term Medical: The Federal Family and Medical Leave Act pertains to companies with fifty or more staff, and in that case only, gives employees up to three months of unPTO to care for themselves or a family member, with a guarantee that their job will be available when they return. In the case the family member is a covered service member, the act allows up to six months unPTO.
• Parental Leave: While maternal and paternal leave is covered under the FMLA (above), some states mandate additional support including PTO for both parents. These are California, Georgia, Rhode Island, and New Jersey.
• Holidays: Only Rhode Island and Massachusetts require companies pay employees for official holidays. Massachusetts takes it a step further with additional paid holidays and regulations broken down by industry. ( Massachusetts Blue Laws) Many companies offer paid holidays as a way to enhance their employer profile. Typical holidays are New Year’s Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
• Leave of Absence: These are periods of job-protected time off for a set period of time that may or may not be paid, depending on the employer. A good example would be when a member of the military is called up to active duty or when someone is called in for jury duty.
• Comp Time: This is paid time off employers often give in lieu of overtime pay. If an employee works two hours overtime, they are paid at their normal hourly rate but accrue two hours of paid time off to use in the future. While this is a common practice, the Fair Labour Standards Act prohibits it for nonexempt workers in the private sector.
• Religious Observance: This is time off for religious needs and is either paid or unpaid at the discretion of the employer. Refusing to give this time off can result in a lawsuit for religious discrimination. PTO banks provide the best solution as staff can use their time as they wish.
Things To Keep In Mind:
• The Healthy Families Act is currently in congress - if passed it will require all companies of 15 or more employees to offer one hour of paid sick leave for every hour worked up to a maximum of 56 hours a year.
• As of December 31st, 2020, the Families First Coronavirus Response Act requires companies with 500 or less employees to give PTO for a variety of Covid-related reasons. Companies with fewer than 50 employees can apply for an exception. Click the link for more detail.
• Time off regulations are changing quickly at all levels of government. We recommend checking with an employment rights attorney in your jurisdiction to ensure you have the latest information.
Building A Policy: Step By Step
Now let’s take some time to look at each of the elements of a time-off policy from top to bottom. For each element, we have included a short explanation followed by things to consider, followed by an example.
We will begin with each of the elements every policy must have, followed by a list of optional elements.
The Crucial Elements
1. The Opening Paragraph
This section contains the name of the company, the objective of the PTO policy, and the date it becomes effective.
Paid Time Off Policy
We are committed to ensuring our people are fully supported. One of the ways we do this is by offering time off. We believe that personal time off is directly related to productivity, quality of work, and workplace culture and so we have built this policy with each of you in mind. If you have any questions at all about the terms of this policy, please reach out to your direct leader.
This policy is effective as of March 1st, 2021
2. Eligibility To Take Time Off
This section provides the criteria on when workers can begin taking time off.
Things To Consider:
• How long do new employees have to wait before becoming eligible to take time off? (ie - how long is your introductory period?)
• Are there any other restrictions?
Eligibility To Take Time Off
Full time employees who work a minimum of 30 hours a week can begin using their PTO hours once they have completed the 30-day trial period.
Employees who work less than 30 hours a week can accumulate paid time off on a prorated basis.
3. Time Off Restrictions
This section defines when employees can schedule time off. Are you anticipating any large contracts this year that will require all hands on deck? If so, you can establish a black-out period where all leave is restricted.
Things To Consider:
• Socialize blackouts well in advance and try not to set them during major holiday periods.
Time Off Restrictions
Our busy season each year is from May to July and during this time, we need everyone working.
As such, time off during this period is prohibited. In the case that you have an urgent need for time off, please reach out to your direct supervisor.
4. Advance Notice
Once you’ve established the windows in which people can ask for time off, you’ll need to consider how they should go about asking for it, and how far in advance they need to submit their requests. Many companies ask for two-weeks of notice to give them time to ensure they have coverage. For vacation and longer periods of leave, it’s common for companies to ask workers to choose their dates in January for the year ahead.
Often companies require employees to submit an email giving notice of their intent to take time off. This system makes it simple to determine who requested time first, and is a way to ensure all requests are reviewed.
Things To Consider:
• How should staff notify you of their intention to take time off?
• Are there different notice requirements for different types of time off?
• What should staff do if they can’t contact you?
To ensure our staffing needs are met, each employee must provide reasonable advance notice to their direct supervisor, and receive approval, before using PTO. For time off in excess of five days, we require a minimum of one month's notice.
On occasion, we understand that it will not be possible to give advance notice. Should such a situation arise, you must let your direct supervisor know as soon as possible.
5. Approval Process
You’ll want to put in place a system to approve requests that is both transparent and fair. In the past, preference was given to seniority but that has largely been phased out in favor of a first come first served (FCFS) model that doesn’t exclude junior staff. Another common method, especially with smaller teams, is to implement a rotating time-off schedule that ensures each member eventually gets first choice.
Whichever method you choose, the approval system should be clean and transparent and no-one should be surprised by your decisions. Some small firms also involve their team in the approval process as a way of building a sense of fairness.
Things To Consider:
• Do you want to manage approvals via seniority, FCFS, or a rota - or would you rather the decision be made by you on a case by case basis?
Time Off Approval Process
We will make every effort to grant time off requests provided they don't negatively impact our operations.
In the event we receive several requests for the same period, we will grant approvals on a first come first served basis.
6. Termination Of Employment
These are the responsibilities of the company in the event an employee leaves or is let go.
Things To Consider:
• What conditions exist, if any, for PTO on an employee’s exit?
• 24 states require companies to pay accrued PTO on an employee’s exit, provided the PTO policy stipulates they will receive it.
Termination Of Employment
When an employee leaves the company, they will receive payment for all unused PTO remaining in their PTO account.
Each of these elements can be added to PTO policies where time off is accrued.
1. Eligibility to Accrue (Split Accrual / PTO Accrual)
Determines which of your team members should be receiving PTO benefits, and when they can begin.
Things To Consider:
• How much tenure is required to begin accruing PTO?
• Is there a requirement that employees be full-time?
• Is there a minimum amount of hours an employee must be working?
• Are there any restrictions? Ie - workers on leave, suspension, etc.
Eligibility To Accrue PTO
All employees working a schedule of at least 30 hours a week are eligible to accrue PTO as of their first day on the job. Those working less than 30 hours per week will accrue PTO on a prorated basis.
2. Accrual Guidelines (Split Accrual / PTO Accrual)
This section defines when and how much PTO a worker can accrue based on their tenure against a preset schedule.
In special cases, some companies permit employees to go into PTO debt - to use more PTO than they have with the intention of accruing more throughout the year.
Things To Consider:
• Will you use an accrual model?
• What are the specific conditions in which your workers will accrue PTO?
• What are the specific conditions in which your workers will NOT accrue PTO?
• Will you have a separate schedule for full and part-time staff?
• What will be the accrual rate?
• What is the minimum threshold of tenure to begin accrual?
• What is the maximum accrual?
PTO is accrued by all employees with each worked and is based on the PTO ACCRUAL SCHEDULE below. As tenure increases, so does the amount of time that can be accrued in each year in addition to the maximum amount of time that an employee can have in their PTO bank.
While we allow the rollover of PTO to the following year, we have implemented an accrual cap. This cap is in place to encourage the use of PTO, and to ensure our business needs are met. PTO hours will be capped at 1.5 times the annual accrual rate. Once you reach the cap, you will no longer accrue PTO for hours worked and you will need to use the hours in your bank before you can restart accrual.
PTO Accrual Schedule
|Tenure||Days Accrued||Annual Hourly Accrual||PTO Accrual Cap|
|< 2 Years||10 Days||80 Hours||120 Hours|
|3-5 Years||15 Days||120 Hours||180 Hours|
|6-10 Years||20 Days||160 Hours||240 Hours|
|> 11 Years||25 Days||200 Hours||300 Hours.|
Final Step: Share The New Policy With Your Team
Once you’ve finalized your policy, you need to make sure everyone in your company is fully aware of it and clear on what their responsibilities are. It’s a good idea to include it as part of your worker onboarding package.
To summarize, as a manager you’re constantly juggling the need for employee flexibility with the reality of your company’s staffing / labor requirements.
This is a constant challenge, but as we discussed, offering your staff a suitable PTO policy is a great way to provide a flexibility that drives all sorts of positive benefits; from enhanced productivity and morale to reduced turnover and accidents.
We hope this guide has been informative and helpful. Please feel free to pull from the included examples (the areas in blue) as you build your policy. Good luck and thanks for reading! - The SINC Team