Creating Your Time-Off Policies

While many European businesses give employees a month or more off each summer, the vast majority of U.S. small businesses do not. How much time off must or should you give to employees? With summer vacations just around the corner, now is a good time to reflect on your time-off policies.

What must you offer?
While there are misconceptions to the contrary, small businesses are not required to give any time off, with or without pay. Companies with 50 or more full-time employees must give unpaid leave under the federal Family and Medical Leave Act (FMLA). National holidays, vacation days, sick days (with some exceptions on a state or local level, such as NYC's paid sick leave policy starting April 1, 2014), and personal days are not required by any federal rules.

As a practical matter, you need to offer some paid time off as an employee benefit in order to be competitive with other businesses. What's typical? It's difficult to be specific because time-off benefits vary widely by company and industry. Federal statistics from 1996, which are clearly old, show 7.6 paid holidays, 8.1 days of vacation time, and 8 paid sick days after one year of full-time employment. The numbers increase to 15.7 paid vacation days and 10.2 paid sick days after 25 years. One 2010 WorldatWork study found that employees had an average of 22 vacation days per year with traditional vacation plans and 29 days per year with paid-time-off plans, which are explained below.

Paid and unpaid time off
Obviously, it's up to you to decide how much paid time off you'll offer. Your decision depends in part on what you can afford. As a rule of thumb, expect that about 10% of your payroll costs will be applied for such time off.

Strategies for time-off policies
There are 10 federal holidays each year. Each year you can view the calendar at the Office of Personnel Management. You may choose to give some or all of them to employees as a paid benefit. (Some companies even give a Monday or Friday off as well if a holiday falls on a Tuesday or Thursday.) Of course, your holiday policy depends on the type of industry you're in. Hospitality businesses, for example, may not close on the holidays and need employees to staff them; retailers may stay open on certain holidays for special sales and can't afford to be understaffed.

Many companies have moved from a fixed number of days off for various reasons (e.g., sick days) to paid-time-off (PTO) plans. These plans, which are in addition to any paid holidays, allow employees to accrue paid leave that they can use for any purpose, such as personal time to attend a child's school event or time off for the illness of an employee or family member. The WorldatWork survey mentioned earlier shows the average PTO time for a new employee is 1.25 days per month (e.g., 15 days per year), rising to nearly 1.91 days per month after 5 years (23 days per year).

Small businesses may have more flexibility in crafting some of their time-off policies. I've advocated for unlimited paid sick time so that ill employees who don't have any paid time off available won't bring their germs to work. This policy comes with the understanding of what this means to employees in small companies: others have to pick up the load when someone is out sick and any abuse of the policy can lead to dismissal. My position has been included in JJ Ramberg's book, It's Your Business.

Can employees carry over unused time off? It's up to you to set the policy. You may want to permit a limited carryover of unused days (say up to five days), but require that days be used annually or forfeited so no one will be able to accrue months of paid time off.

For more about scheduling vacation time for you and your staff, read my article on Vacation Planning 101.

Make your time-off policies clear to your staff. Include them in your employee manual, but list paid holidays in the appendix so it can easily be updated annually.


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