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There are many ways to structure your employee PTO offering, from setting a flat amount versus implementing accruals to allowing carryovers. — Getty Images/Kar-Tr

As your small business grows its team, you may be wondering how much paid time off (PTO) you should offer your employees. Offering PTO is a great benefit that incentivizes talented candidates to apply to your company and provides value to your existing team. However, offering too much PTO can impact your finances and productivity. Here are some considerations to help small business owners calculate their PTO offerings.

How much PTO should you offer?

On average, private sector companies offer their employees 10 days of PTO annually as a starting point. This equates to two working weeks and does not include sick days or paid holidays. As an employee stays with a company, the amount of PTO they have usually increases. Typically, employees can expect to accrue an extra three to four days of PTO for every five years they’ve worked at a company.

The amount of PTO a company offers also varies based on the industry. Those in media, finance, and engineering can expect to earn more than 10 hours of PTO annually on average. Workers in retail, food service, and accounting typically earn less than 10 hours of PTO annually.

[Read more: 4 Smart Enhanced Employee Benefits To Kickstart Recruiting]

How to calculate your PTO amount

Flat amount

Employers can offer their workers a set amount of PTO at the start of every year. Companies can choose to either allow these days of PTO to expire at the end of the calendar year or roll over into the next one. The amount a company offers depends on how many days they can afford to pay an employee when they aren’t working. Allotting PTO at the start of each calendar year makes it easier for both managers and employees to keep track of how much PTO is available and when it’s been used.

Unused PTO is often lost for employees at the end of the year. This encourages them to take advantage of the time off they have when it is available.

[Read more: How to Structure Employee Paid Time Off Policies]

Some employees may even not take PTO in an effort to show their loyalty to a company, which can lead to employee burnout.

Accrual

Some companies prefer to offer PTO on an accrual basis. This method of PTO distribution involves employees earning PTO on a routine basis, typically quarterly or monthly. Since these days are accrued over time, there is no rollover policy for employees. Through accrual, employees can build up PTO to take more time off at once. However, this may leave a business understaffed for significant periods of time.

Unlimited

Offering unlimited or flexible PTO has become a popular trend among companies recently. As the name suggests, unlimited PTO means there is no limit on how much PTO an employee can take. They don’t have a flat amount or accrue it over time. Rather, they can take time off as they need.

An unlimited PTO policy is a great incentive for employees to join or stay with your company. However, managers fear that having no cap on PTO will lead some employees to abuse the policy, such as employees taking weeks to months off at a time. Because of this possibility, employers need to modify this policy when offering it and include certain clauses within it, so employees don’t take advantage of it.

Unlimited PTO policies can often have the opposite effect, as well. Because there is no expiration date on the PTO, people often forget or choose not to take it because they don’t have to. Some employees may even not take PTO in an effort to show their loyalty to a company, which can lead to employee burnout. Managers must maintain a strong culture so that their teams don’t abuse unlimited PTO in either direction.

[Read more: What to Consider Before Offering Unlimited PTO]

Carryover

Carryover or rollover PTO is a policy where unused days carry over into the next year. For example, if an employee doesn’t use three out of the 10 PTO days they are allotted in one year, they’ll start the next year with 13 days total. Carryover PTO is a great benefit for employees who need to take an extended period of time off, such as if they’re getting married or taking care of a sick parent. However, like any PTO policy where employees can take off for extended periods, it can leave a company understaffed and financially strained.

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

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Published June 13, 2022