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The AR Group

Summertime Vacations and Time Off

By Victoria Aguilar

With summer vacations beginning, it?s a really good time to reflect on your company?s time-off policies.

Is Time Off Required?

We are routinely confronted with the number of small business clients who are surprised to learn that they are not required to offer employees time off. We advocate that having a ?Time Off? policy is important from a cultural a well as market demand perspective, to say nothing of the return employers realize when employees take time away. But the reality is that employers with less than 50 full time employees (FTEs) are not required to give?any?time off?with or without pay. However, employers with 50 or more FTEs are required to give unpaid leave under the federal Family and Medical Leave Act (FMLA). What is more, employers are not required to provide employees with time off to celebrate National holidays. A relatively new movement underway, mostly at the local or municipal level, is requiring that employees be provided sick time. To date only seven cities (San Francisco, District of Columbia, Seattle, Portland, New York City, Jersey City, Newark) and one state (Connecticut) have mandated such a benefit however.

If Offered, How Much Time Off is Typical?

As a practical matter, most employers (including small businesses) strive to offer some paid time off as an employee benefit in order to be competitive with other businesses. But many wonder what they should offer, questioning, ?What?s typical?? Because time-off benefits vary widely by company and industry, this is a question that is not readily answered. That said, government data from 1996, which are clearly old, are still the most recent data on the topic and that data show that typically employers offer 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 study1?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 plan.

Determining how much paid time off provided is obviously a decision that is entirely up to the business owner. Most often, the decision ultimately made depends on what the business can afford: both in terms of dollars incurred and in terms of loss of staff for a period of time. From a financial impact perspective, one can reasonably expect that about 10% of payroll costs will be applied for a paid time off benefit.

Strategies for time-off policies:

Federal Holiday. Currently there are 10 designated federal holidays each year. We encourage our business clients to consider giving some or all of them to employees as a paid benefit. That said, any holiday policy must be designed with due consideration of the type of industry the business is 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, while banks or businesses that align with financial markets might see value in taking down time with the rest of the industry is closed.

PTO or Vacation/Sick Programs. Many companies have moved from granting a fixed number of days off for various reasons (e.g., sick days) to?paid-time-off (PTO) programs. These plans, which are in addition to any paid holidays, allow employees to accrue paid leave that can be used 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 average PTO granted to 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)1.

Vacation or PTO Carry Over. Employers are strongly encouraged to investigate the laws that address whether vacation or PTO is considered ?earned income?.? If considered earned income, many states prohibit a ?use it or lose it? type policy. This means that how an employer treats accrued but unused vacation and/or how an employer pays out accrued but unused vacation needs to be carefully considered and communicated. From a policy perspective, we typically encourage our clients to permit a limited carryover of unused days (say up to five days), but require that days be used annually or paid out or deny the ability to continue accruing until days are brought to a certain standard.

SMART TIP: Make your time-off policies clear to your staff. Include them in your employee manual and be sure to manage Time Off Requests in an objective and neutral fashion.


1 Paid Time Off Programs and Practices.” WorldatWork. N.p., n.d. Web. 23 June 2014. <>.