Building the Best Paid Leave Policy for 2021 and Beyond

Author: Kim Freeman, Esq.

Many factors contribute to a successful business, including quality goods or services, technology solutions and accounting principles. But overarching all of these is a workplace culture that focuses on supporting employees, the lifeblood of the organization. One way to further that goal is by building the best paid leave policy possible, and the 2021 XpertHR paid leave survey report can help.

Paid leave policies for employees in the United States vary considerably. When determining paid benefits policies, employers must consider possible legal mandates, the need to compete for talent, workforce culture and the bottom line. The resulting plans typically fall within one of three main categories: traditional paid leave plans (separate allotments for vacation, sick or other leave), paid time off (PTO) plans (one bank of unclassified time off) and unlimited leave plans.

To understand current trends in paid leave benefits, XpertHR recently surveyed 639 US businesses, representing a total of more than 2.1 million employees. When you compare the 2021 survey results to the results of the 2020 XpertHR employee benefits survey, it appears employers continue to prefer traditional leave benefits over PTO. Unlimited paid leave plans lag far behind these two powerhouses.

According to the 2021 survey results:

  • 51% of surveyed organizations use traditional paid leave plans,
  • 41% use paid time off (PTO) plans, and
  • 4% offer unlimited paid leave.

These numbers closely resemble the 2020 survey results, in which 49% of respondents had traditional paid leave plans and 44% had PTO policies. Two percent wrote in "other" paid leave plan.

If you're an HR professional charged with drafting or revising your company's paid leave policy, you'll find there are many considerations involved in selecting the right plan. By learning the pros and cons of each type of plan and considering where paid leave policies appear to be headed, you can design a policy that is compliant, follows best practices and suits both employees and the company.

Traditional Leave

Besides vacation and sick time, traditional paid leave policies often include jury, bereavement and voting leave. In XpertHR's 2021 survey, among companies with a traditional leave plan, nearly all (98%) provided paid vacation time, and the vast majority also granted paid sick leave (91%), paid bereavement leave (83%) and paid leave for jury duty (75%).

Factors for consideration in adopting or maintaining a traditional paid leave policy include:

Pros

  • May offer more total leave days than a PTO plan,
  • Familiar to most employees,
  • Easy to determine the payout of earned, accrued leave, if required by law, and
  • Employers may not have to pay out accrued sick leave upon termination, so long as their sick leave policy is clear.

Cons

  • Administrative tracking burden,
  • More management oversight and validation necessary, and
  • No flexibility for discretionary or personal leave could result in employees using "sick time" inappropriately.

When drafting a traditional paid leave policy, HR needs to consider when leave will accrue and at what amounts; whether any accrued but unused paid leave will roll over to the following year; and what the policy will be on paying out accrued paid leave. Some companies find traditional leave policies attractive because, while there may be requirements for payouts or rollovers for accrued vacation leave, unused sick or personal leave generally is lost from year to year.

A paid time off program provides employees one bucket of paid leave to use for any time away from work. PTO has grown in popularity over the last two decades.

According to the 2021 survey, most respondents with a PTO plan provide a PTO bank along with separate company-paid holidays and other paid leave, including jury and bereavement leaves. The plans typically reward more PTO to employees with longevity and provide for carryover of some portion of accrued, unused time.

When evaluating whether a PTO policy is right for your company, consider these factors:

Pros

  • Less administrative burden,
  • Employees have the flexibility to take their allotted time off for any reason, and
  • The flexibility may reduce the possibility that employees will call in sick in order to take a personal day.

Cons

  • Fewer leave days,
  • May tempt employees to conserve allotted days for vacation and come to work sick, and
  • Possible payout of the entire PTO balance at termination.

When building a PTO policy, it is important to consult state and local laws in order to determine when accrued PTO must be paid out upon termination of employment, whether because of retirement, resignation or involuntary separation. Depending on the jurisdiction, the policy may allow PTO to accrue each pay period rather than providing a year's allotment upfront. Additionally, state law may dictate whether a company can have a "use it or lose it" policy that resets PTO balances at the end of the accrual year.

Unlimited Paid Leave

An unlimited paid leave plan puts no restrictions on the amount of time employees can take off work so long as they meet business needs first. Although unlimited paid leave is growing in popularity - especially in the tech industry as companies compete for the best talent - it is far from prevalent: only 4% of respondents offer it.

The advantages and disadvantages of implementing an unlimited paid leave policy include:

Pros

  • Attractive to employees seeking work/life balance,
  • Provides a competitive edge in recruiting, hiring and retention,
  • No tracking of accrued or used leave, and
  • No accruals that require possible payouts.

Cons

  • Managers must balance requests and business needs,
  • Employees may find it hard to schedule time off because colleagues are out,
  • Potential for abuse,
  • Costs, and
  • Employees in actuality may take less vacation time.

Although few companies offer it, the unlimited leave option warrants consideration, especially if you have an employee culture that suits it. Getting C-suite buy-in for an unlimited leave policy can be done with the proper preparation and with data to support it.

If you implement an unlimited paid leave plan and later discover it is not working out as hoped, you should have a Plan B ready for a quick transition. By having a compliant alternative ready, you can end an unlimited leave policy with the least amount of upset and maintain focus on employee and business needs.

Future Considerations

Organizations' and employees' needs change over time, and HR must stay attuned to these shifts and their implications on leave policies. Proactive reassessment of your company's paid leave program shows the value of HR as a business partner.

Effect of Remote Work

With more jobs either transitioning permanently to remote work or to some hybrid of office/remote-based, paid leave management issues may increase. HR needs to train managers and supervisors to navigate paid leave issues in light of these new work models.

For example, employees working from home may not take much PTO during the year. This can lead to a problem at the end of the benefit year when multiple employees request time off rather than lose vacation days that do not roll over to the next year. Of the surveyed companies that offer traditional plans, nearly a third forbid any carryover of vacation time, while among those with PTO policies, just under one in five (17%) do not permit PTO rollover.

Likewise, if the company has a policy of paying out accrued, unused leave at the end of the year, the bottom line could be affected if employees aren't taking leave. The same is true if policies call for payouts at termination. For example, the survey showed that 70% of organizations with PTO policies fully pay out all accrued, unused PTO if an employee voluntarily resigns.

It is equally essential to impress upon employees how vital time off from work is to their well-being. Employees who fail to take leave can suffer from burnout, low morale and decreased productivity, all of which may lead to possible retention issues.

"Having a robust paid leave policy reduces turnover," according to Aimee Houde, a veteran recruiter at a Texas-based PEO. "It glues people to the organization."

Leave administrators, whether managers or HR, should consider quarterly reviews of paid leave balances and have a process to remind employees that it's important to take time away from work to rest and recharge. In summer, employees should get a general reminder that the company may not honor all requests for time off during the holidays due to business needs.

Tightening Job Markets

Experts believe the job market will continue to improve in 2021. As talent competition tightens, HR and recruiting leaders need robust paid leave programs to land top candidates. Research shows that paid leave policies attract the cream of the applicant crop. For millennials, who since 2016 have been the largest generation in the labor force, work-life balance is essential, and a company's leave policy is a factor in accepting a position.

"When attracting top talent, smart organizations stay flexible in negotiating time off," Houde said. "Vacation leave is a huge carrot in attracting the most experienced and talented prospects, and companies win when the negotiations can favor the applicant," she added.

Legislation

Before the COVID-19 pandemic, several local and state jurisdictions had already passed mandated paid leave for employees. In response to COVID-19, many additional jurisdictions adopted, expanded, or supplemented existing paid sick leave laws.

President Biden has proposed a paid federal leave law for private employers as well. Recently, state treasurers from 17 states sent a letter to Congress advocating for federal paid family and medical leave. Hundreds of business leaders wrote a similar letter telling Congress that "access to paid leave also leads to better retention, personal health, and improved morale, which contributes to stability and viability for our businesses, ultimately helping our bottom line."

Accordingly, HR for multi-jurisdictional companies must stay focused on possible paid leave legislative initiatives, especially in the next few years.

Picking the Right Paid Leave Plan for Your Business

Paid leave doesn't exist in a vacuum. It is part of overall employee attendance administration. Because employees are often entitled to other types of leave, paid and unpaid, keeping up with them all can cause headaches for even seasoned HR professionals, said Zach Gerhardt, a consultant with Columbus, Ohio-based ClearPath Benefit Advisors. Gerhardt said HR departments need to stay on top of administrative issues while also keeping abreast of local and state leave laws, which can be challenging.

When determining the best policy for your business, consider what others in your industry do, and remember to check local and state laws to ensure compliance.

Ultimately, a paid leave policy should:

  • Provide adequate leave for employees to recover, rest and rejuvenate,
  • Be easy to understand, implement and administer,
  • Allow for flexibility,
  • Be attractive to top talent,
  • Include paid time off for reasons outside of vacation or sick time,
  • Consider budgets and business needs, and
  • Be legally compliant.

Designing the right paid leave policy can increase employee productivity, engagement and retention, too. And, if ultimately mandated by law, having a paid leave policy in place that follows best practices will likely mean easier compliance.

Additional Resources

Vacation and Paid Time Off Benefits by State

Final Wage Payment Requirements by State and Municipality

Leave Laws by State and Municipality

Paid Sick Leave by State and Municipality