We know…. You’re a small company with a lot of responsibilities and expenses. There is no way you could offer Paid Time Off to your staff. But what if you could offer PTO to your employees at the same time you reduce unplanned absences and increased your benefit offerings in the eyes of your employees? Many savvy California employers are considering offering PTO instead of sick leave. Before making this decision, make sure you understand the advantages and disadvantages to each approach and determine which plan is best for your business.
Did you know that since 2015 nearly all businesses in the state of California are required to provide paid sick leave (PSL) to employees? In addition to the California requirements, over 20 cities and local ordinances (including the city of San Diego) have their own sick requirements which often provide a greater benefit than the California plan. Therefore, if you have employees scattered across California you may have to understand, provide and administer several different sick leave policies. The sick leave requirement allows companies to meet the sick requirements through their own sick or PTO plan as long as that plan meets all the requirements of California’s Paid Sick Leave. A few of those requirements include posting and notification requirements, properly calculating and accruing or granting the leave, and other components of implementation.
Sick calls are particularly challenging in a small businesses with limited staff. As California employees have gotten used to seeing sick leave on their paystubs (a requirement of the PSL law), employers have started to notice a disturbing trend - The frequency of sick calls has increased! Sick leave is use it or lose it and employees realize if they don’t take it they won’t be able to bank the time for future sick needs or be cashed out upon termination. This tends to reward poor employees (those willing to call in sick when they are not sick) and does nothing to reward those who would never call in sick unless they were truly ill.
Why consider offering PTO instead of sick? Employees tend to prefer Paid Time Off and see it as a benefit offering vs. a statutory mandated requirement. PTO provides employees with one bank for vacation, sick or personal time and allows them to use it as appropriate for their circumstances. Employees enjoy the flexibility in how the time is spent and prefer not having to call in “sick” when they are not. For employees that are never sick, they can use the time for vacation or personal usage. For those employers who had typically offered sick, vacation and personal time, it allows them the convenience of managing only 1 leave bank. Also, for most employers it tends to reduce the amount of unexpected sick calls since employees can request PTO ahead of time instead of feigning illness. One important drawback to PTO is that it must be paid out at termination, unlike paid sick leave. Also, you must allow the maximum PTO bank to be 1.5X the employees’ annual accrual rate.
Offering PTO in lieu of sick is not for every business. If you do elect to offer PTO consider if the accrual method (when employees earn a small chunk of PTO each payroll instead of being granted the full amount when they become eligible) or grant method (providing the full amount by the required date) makes more sense for your business. It’s also important to cap the maximum PTO employees can have in their bank to limit your liability when an employee terminates employment. No matter which method you choose make sure you a strong payroll partner to help you track and accrue the leave as well as a written company policy in place that is clearly communicated to your employees. There are many requirements and nuances to the sick leave and PTO requirements so be sure to get help from a professional before you implement a new policy. Check out our cheat sheet at http://www.northcountyhr.com/resources.html to see more of the advantages and disadvantages of each type of plan.
Laura Henderson is a Human Resources professional with over 20 years experience working with a variety of businesses.