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PTO Liability
Benefits & Compensation
PTO Liability
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I would like our company to move from a traditional vacationa and sick plan to PTO; however, I'm having trouble due to Finance saying they would have to take a huge hit to the books and PTO would mean
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Forums » Topic Forums » Benefits & Compensation » PTO Liability
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PTO Liability
posted at 2/13/2009 3:47 AM EST
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Posts: 21
First: 5/3/2005 Last: 4/15/2011 |
I would like our company to move from a traditional vacationa and sick plan to PTO; however, I'm having trouble due to Finance saying they would have to take a huge hit to the books and PTO would mean an immediate expense to the books. In other words, right now, we only accrue for vacation that can be carried over year to year as an expense.
Any thoughts or suggestions? I'm afraid if I cannot come up with something, we won't get a PTO plan. |
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PTO Liability
posted at 2/13/2009 4:08 AM EST
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Posts: 2146
First: 2/15/2006 Last: 9/14/2011 |
What state are you in? What law do they have on payout of unused vacation at termination? Do/Can you have a "use it or lose it" policy under your state laws?
Many times it is more costly to have a PTO plan because the employer might become responsible at termination for all accrued time (what used to only be vacation and not sick time). So yes, it could definitely be a hit to the books. And especially if you are converting existing large sick banks into PTO. What exactly is your goal of switching? To me, there would have to be direct cost saving to offset the increased cost of the accruals/bank. |
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PTO Liability
posted at 2/13/2009 4:10 AM EST
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Posts: 21
First: 5/3/2005 Last: 4/15/2011 |
We are in Indiana. We would pay out earned PTO but not accrued. We have horrible administration issues and we have a diverse workforce and think the flexiblity would be beneficial and I've read many things that indicate PTO reduces absenteeism. The curretn sick time would not be payable it would just go away at the end of the year (it's use it or lose it). |
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PTO Liability
posted at 2/13/2009 6:45 AM EST
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Posts: 3870
First: 2/12/2002 Last: 11/2/2009 |
Not sure why you're making a distinction between "earned" and "accrued" PTO since they typically mean the same thing.
I didn't see mention of capping your PTO accrual, which should do something to allay the fears of your finance folks. A cap of 1.5X or even 2X annual entitlement is commonly used beyond which no further PTO will accrue until some is used. You might also want to do a study of vacation and sick leave usage rates. Your finance folks are correct in noting that accruing sick as well as vacation will increase corporate liability. The question you need to provide an answer to is "how much?". Other factors you need to take a look at is how many employees have a gazillion hours of vacation accrued and how limiting accruals will help, how offering 3 weeks of PTO instead of only 2 weeks vacation might help recruiting. A full blown cost/benefit analysis to be sure - perhaps a nice internship project for a local MBA student to work on. |
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PTO Liability
posted at 3/5/2009 6:41 AM EST
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Posts: 2
First: 10/17/2006 Last: 3/5/2009 |
We made the switch a few years ago. PTO accrual is less than vacation and sick combined. We performed analysis on sick usage to determine both how much was being used as well as the impact of unscheduled leave. We also had a very generous sick leave maximum and thus large sick leave banks. Our current employees were able to keep those sick leave banks (with usage restricted to longer illnesses). New employees do not have a sick leave bank. The accounting department included lost productivity due to unscheduled leave in the analysis and well as accounting for reduced usage over time of the sick leave bank. We came out without a financial gain or loss in the final analysis. |
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