Having an effective paid time off policy is essential for maintaining company culture and attracting new hires. A strategic paid time off (PTO) policy follows the vacation requirements for your region and local labour laws, and it remains flexible to ensure employees know that their employer values both work and leisure time. While PTO policies are a great benefit to your employees, it’s up to you to decide what type of policy fits best with your company culture. In this article, we discuss how to create a paid time off policy for your business that follows the federal labour standards and pairs well with your company culture.
What is a paid time off policy?
A paid time off policy or PTO means both salaried and hourly employees get paid to take a certain amount of time off from work. There are several PTO categories, but not all organizations offer each category in their company leave policy. That said, some common PTO categories include:
The three most common types of PTO are vacation time, sick days, and personal leave. Obligatory situations such as statutory holidays, long-term sick leave, jury duty, bereavement, pregnancy, and parental leave may fall under separate policies covered under the Employment Standards Act. While some employers offer a designated amount of PTO for each category, others give employees a set amount of time to divide between categories. Employment and labour standards indicate that all employees, both full- and part-time, in every Canadian province and territory receive a minimum amount of PTO, so it’s important to know the vacation requirements in your region.
Why are paid time off policies important?
A PTO policy provides guidelines and sets expectations when employees need time off. These policies let employees and potential new hires know that when they need time off from work, they can do so without feeling anxious or stressed about asking for time off or having to miss unpaid work.
It’s good company practice to keep your employees happy and at ease. Not worrying about needing time off from work is an easy way to keep them productive, engaged, and committed to your organization. When you take care of your employees by encouraging PTO, it helps boost employee morale and retention and prevents employee burnout.
When creating your time off policy, you need to consider what’s best for your company and employees. An effective PTO policy is fair, accessible to everyone, and easy to understand. It clearly outlines the amount of paid time off your employees are entitled to and how and when they can use their time off requests. For example, some organizations use a PTO policy that allows employees to bank their paid time off toward a special vacation, celebration, surgery, emergency, or some much-needed rest.
What are the types of PTO policies?
There are three types of paid time off policies: accrued, banked, and open. Each has its advantages and disadvantages to consider when deciding what’s best for your business and employee wellbeing.
1. Accrued days
This PTO policy allows employees to earn paid time off. Canadian laws calculate PTO as a percentage of the employee’s gross wages during their year of employment. When the PTO entitlement is two weeks, their PTO is 4% of their earnings during the entitlement year. When the entitlement is three weeks, the PTO is 6%. Some organizations allow their employees to use their PTO ahead of time without accruing their days as long as the employee agrees to give those days back as they earn them.
2. Banked time
When employers allow their staff to pool their PTO into a single fund that they can pull from any time they request time off, it’s called banked time. This policy usually doesn’t require the employee to need a specific reason for time off. The only rule here is for the employee to give two weeks’ notice if they’re looking to take several consecutive days off.
3. Open
An open PTO policy allows employees to save as much paid time off as they want without a cap on the amount of time they can accumulate. With this type of policy, employees can essentially work for years, save up their PTO, and take an entire month off at once. Some employers limit how their employees can use their open PTO, including requiring a designated amount of advance notice and the number of consecutive days they can take.
Offering unlimited PTO under the open leave policy
Some organizations offer unlimited PTO for meeting performance goals, while others offer it right from the start of an employee’s career. You’re not required to offer an unlimited policy, nor do you need to provide it for all three types of PTO—you choose how to structure your policy according to your company goals and local employment and labour standards. For example, if you prefer to offer unlimited sick time and only the required amount of vacation PTO, that choice is entirely yours.
Advantages and disadvantages of offering unlimited PTO
Like any other business aspect, offering unlimited PTO has its set of advantages as well as disadvantages, which are as follows:
Advantages
Disadvantages
Let’s talk about the main PTO categories
Most businesses have PTO policies outlining the three main categories requiring time away from work: vacation time, sick days, and personal leave.
1. Vacation time
It’s every employee’s favourite time of the year—vacation time. Most employers offer this PTO after every 12 months of consistent employment. Each province and territory has a mandatory minimum two-week vacation period (the exception is Saskatchewan, where it’s three weeks). The minimum increases according to the employee’s length of service, depending on the jurisdiction. For example, in British Columbia, Alberta, Manitoba, and Quebec, employees earn a minimum of three weeks’ vacation after five consistent years of employment.
It would be best if you also considered mandatory statutory holidays. Full-time employees are entitled to paid stat holidays, and some part-time employees are eligible depending on your province or territory. These paid days don’t come out of your employees’ PTO as they’re national mandatory time off days. Here are the most common statutory holidays in Canada:
It’s the employer’s responsibility to ensure employees take their designated time off. Most employers allow employees to choose their vacation time, providing it’s within reason. And some provinces have mandatory laws that don’t allow employees to skip vacation time, such as British Columbia and Alberta, where they recognize the physical and mental need for periodic breaks from work. Each territory and province has its own restrictions on taking vacation time in one-week increments or single days. However, in most provinces, including Ontario, British Columbia, and Quebec, “vacation time” is separated into two categories: vacation pay and vacation leave.
Vacation pay is a government-mandated way to ensure employees receive PTO for vacation or get paid for vacation time they choose not to take. Vacation pay is typically 4% of an employee’s annual salary. Whereas vacation leave is the number of days off an organization must give each employee per entitlement year.
2. Sick days
Creating the ultimate sick leave policy for your business can be difficult. You don’t want sick employees showing up for work, yet you also don’t want dishonest employees taking advantage of unnecessary paid time off. To design a good balance of PTO sick days, first determine the requirements of your organization.
Who can take sick leave?
Employees who encounter a personal illness, medical emergency, or injury can take sick leave. However, employees who undergo non-medical operations for cosmetic purposes or reasons unrelated to their injury or illness are not entitled to sick leave.
How many sick days are allowed?
The Employment Standards Act enables employees to take job-protected sick leave every year, regardless if it’s paid or unpaid. Anyone employed with a business for at least two consecutive weeks can take three days of unpaid sick leave per calendar year in Ontario. The amount of sick days attributed by law varies from province to province.
3. Personal leave
Your employees have lives outside of work, so offering personal days is a nice touch when creating your PTO policies. These bonus days give employees an added incentive to come to work, be happier and more productive, and stay loyal to your organization. With personal leave, your staff can take time off for things outside of vacation time or sick leave, such as moving, birthdays, religious celebrations, and mental health days.
How to create a time off policy for your business?
When creating your PTO policy template, ask yourself these questions to make the decision process more manageable:
Ultimately, you may want to obtain answers in sync with your culture. This can help you create a time off policy that is in the best interests of both the employees and the organization.
