<i>Dear Workforce</i> What Do You Think of Our Vacation Policy?

July 5, 2000
Dear Workforce:
We are considering changing our vacation policy to a rest and relaxation policy, whereby employees no longer accrue vacation but the amount of time they have to take off is increased.
We will not accrue the vacation liability on the "books" but we will have to track the time taken by each employee. Our goal is to ensure that our employees really do take the time off. Too many employees don't take the time, then sell back a week's worth
of vacation once a year with a large vacation accrual remaining. Does this sound like a good idea?

-- Sharon Womack, Director of Human Resources, ADAC HealthCare Information Systems
A Dear Sharon:

Employers are increasingly combining what were historically separate leave provisions (e.g., vacation, personal days, sick leave, etc.) into a consolidated paid time off (PTO) program. These programs are designed to empower employees to manage their paid time, while at the same time redesigning and better aligning disability programs.
It is also common to limit or eliminate the extent to which unused paid time is accrued and/or carried over. Employers must take care, however, to address any applicable state laws.
One of the approaches often used to address employee flexibility and concern with time off accruals is to incorporate PTO provisions into a cafeteria plan. Under IRC §125, an employee can be given control over a portion of available PTO, which in turn triggers the "use it or lose it" requirements under §125, effectively precluding carry-overs of this discretionary time.
Then, based on plan design and employer philosophy, carry-over issues associated with non-discretionary time can be largely mitigated.
SOURCE: Don Heilman, Sr. VP and consultant, Segal Company, Denver, CO.
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