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Paid-time-off banks make managing absences easier.
Joseph McCafferty, CFO Magazine
October 1, 2005
After acquiring five companies in the past five years, Monster Worldwide Inc. found itself with a hodgepodge of policies governing vacation, personal, and sick days. "They were a nightmare to administer," recalls Greg Limoges, vice president of compensation, benefits, and human-resource information systems for the online career network based in Maynard, Massachusetts. Monster's solution: a paid-time-off bank.
PTO banks — which combine vacation days, sick leave, personal days, and, in some cases, holidays, into one lump of time that employees can use for any reason — are gaining popularity with employers. Among the companies that have moved to install PTO banks in recent years are insurance giants CNA and The Hartford Financial Services Group Inc., and Covenant Health System, a health-care concern in Waterloo, Iowa. Mercer Human Resource Consulting in New York last year surveyed 536 midsize and large companies and found more than 1 in 3 now offer PTO banks.
Many CFOs favor PTO banks because they help trim the liability their companies are required to carry on the books to cover accrued vacation. That's because the new plans typically come with limits on the number of days employees can build up in the banks or roll into the next year. Martin Kelleher, CFO of Monster North America, says the positive accounting effect was a key advantage of the new plan. "It minimizes the financial exposure when an employee leaves the company," says Kelleher. "The days they can carry over are now capped."
PTO banks also help streamline benefits administration and cut the cost of absenteeism. At most companies, paid time off is the most expensive benefit they provide, eclipsing even health care. Scheduled time off accounts for more than 10 percent of payroll, according to Mercer. Unscheduled absences account for another 4 percent of total payroll, the consulting firm says, though it believes many companies underestimate the true cost of unscheduled absences.
Instituted three years ago, The Hartford Financial Services Group's PTO bank enables the insurer to more effectively control the process of workers taking time off. Previously, managers were responsible for tracking workers' absences in their departments. "Some tracked the information more closely than others," says Karen Macke, senior vice president of compensation and benefits for the insurer. Now absences are reported through local departments, by way of a PTO attendance-tracking tool.
Monday Morning Flu
PTO banks are proving popular at hospitals and other workplaces where attendance is crucial. Placer Electric Inc., based in Citrus Heights, California, installed a PTO bank three years ago after struggling with a bout of questionable absences every December. Before that, the electrical contractor had provided its employees with 10 sick days a year. Employees who didn't use their full allotment were allowed to roll up to 80 hours into the next year. As a result, every year after Thanksgiving, Monday morning "illnesses" were common, making it difficult for managers to schedule tasks and complete projects.
Placer's PTO bank eliminates the Monday-morning calls, enabling the company to budget manpower more effectively. Valerie Kravchenko, director of human resources, says the PTO "takes the mystery out of it." Now, employees don't have to lie about being sick to cash in on their benefits. They also tend to give more notice about upcoming absences. Placer doesn't have a written policy governing how much advance notice it needs before workers take a personal day, but it asks employees to use the benefit responsibly.
PTO banks do have disadvantages. For one, the banks may have a negative effect on the books. Most states regard PTO days as vacation days, which means they are an asset owed an employee when he or she leaves the company. Sick days, when kept separate, are generally not considered a liability on the books.
Also, a PTO bank can be costly to implement. Earlier this year, one engineering consulting firm considered changing to a PTO bank, but ultimately decided against it. Why? Many longtime employees had accumulated large stockpiles of sick days and vacation time. That meant the firm had two options, neither of which was attractive: either make a large cash payout to the employees in order to reduce their balances, or make special arrangements for some employees for a long time into the future. The firm was also worried that the plan might be perceived by some as a cut to their total time off.
That company's concerns are valid. A move to a PTO bank can be controversial, since some employees will consider it a takeaway if the total number of days is less than the prior combination of vacation and sick days. At a time when many employers are asking their employees to pick up more of the health-care tab, some companies might not want to be seen as taking away from another benefit.
Teaching employees to manage their banks responsibly is important. Some may drain the bank for a longer vacation early in the year, leaving them with no time if they get sick later in the year. Or employees may come to work even when sick so they can hoard time off. Few companies have complained of problems, though. If a worker doesn't have enough time available, Monster says it will consider allowing the individual to borrow against a future allotment. So far, that hasn't been a major issue for the company.
Based on its experience, Hewitt Associates LLC says employees adapt well to the new system. The bottom line: PTO banks don't change employees' ingrained work habits, says Carol Sladek, a work-life consultant at Hewitt. "There are always some diehards who show up when they're sick."
PTO banks also help clarify companies' policies about sick leave, which is a relief for many managers. Increasingly, companies have struggled with tension in the workplace because of poorly defined sick-leave policies. Some workers use their sick leave to care for ailing children or elderly parents. Resentment from co-workers who don't have those responsibilities can be a problem. PTO banks "take all of those questions out of the equation," says Shelly Wolff, of HR consulting firm Watson Wyatt Worldwide, in Washington, D.C.
Policymakers in Washington recently made it easier — and less costly — for companies to install PTO banks. The Treasury Department ruled in April that companies are not required to pay out cash to employees who have accrued vacation time, but can instead roll the equivalent amount into a health reimbursement account. Since it is an accrual account, employers wouldn't be on the hook for the cash until the employee uses it to cover medical expenses. The ruling will go into effect at the end of the year.
Joseph McCafferty is departments editor at CFO.