Friday, February 14, 2014

SOP Friday: Paid Time Off / Paid Holidays

When you're really small, things like "time off" are not a huge concern. After all, when it's just you there isn't much time off. And when you hire someone, it's just the two of you, so things are (probably) very casual.

But as you company grows, you need to begin thinking about your policies around paid holidays and time off. This falls into the category of "Act like the company you want to become."

Please see the articles on Holiday and Pay Day schedules.

And the article on choosing pay days.

And the article on Hourly vs. Salaried Employees.

Paid Holidays

Here's the most important thing to remember about policies regarding holidays and paid time off: With very few exceptions, you can do whatever you want. Think about the world you live in. There are are people working twenty-four hours a day, every day of the year. So you really only have to treat holidays in a special way because you want to.

Next, consider whether you just want to give people the time off, or whether you intend to pay them for that time off. Again, you can pretty much do whatever you want.

But here's the next most important thing to remember: Whatever you do, you must do it consistently. If you treat employees differently, you need to have a written policy to avoid law suits or a run-in with the labor relations board in your state.

The funny thing is: Your policy can be completely absurd, as long as it's written down and followed religiously. You can say "All employees who are the owner's brother in law shall have paid time off for all federally recognized holidays." I don't recommend it, but you can do it.

More importantly, you need to draw some pretty solid lines to divide people into categories and determine the policies for each category. For example, people on salary are treated differently from people who work on an hourly basis. People who are part time are treated differently from people who are full time.

Our "Paid Time Off" policy is very simple.

1) Employees on salary are paid for time off for the holidays listed on our official holiday schedule.

2) Employees who are paid hourly are given time off for the holidays listed on the official holiday schedule, but they are not paid for that time.

That's it.

If you have lots of people who are paid hourly and work full time, you might have a policy something like this:

1) Employees on salary are paid for time off for the holidays listed on our official holiday schedule.

2) Employees who are paid hourly and work a normal schedule of 35 hours or more per week are paid for time off for the holidays listed on our official holiday schedule.

3) Employees who are paid hourly and work a normal schedule of 33 hours or less per week are given time off for the holidays listed on the official holiday schedule, but they are not paid for that time.

Non-Holiday Paid Time Off

Giving additional time off (vacation time) is a different topic altogether. But here again, you just need to be consistent.

First, decide who is eligible to accrue paid time off/vacation time (PTO). It might be just managers, or those who have been with the company for more than a year, or it might be all full time employees. It could even be everyone.

Second, you need to keep track of accumulated PTO. That means you have to have some kind of formula. And you may have different formulas for different people. For example:

1) Full time employees who have been with the company for more than 36 months earn PTO at the rate of two weeks per year

2) Full time employees who have been with the company for 12 to 35 months earn PTO at the rate of one week per year

3) All other employees do earn PTO

Again: Draw a few big lines and decide what you consider to be fair and affordable.

Here are some numbers to consider:

- Full time employment is officially 2080 hours/year (40 hours x 52 weeks)

- One week of PTO = 40 hours; two weeks of PTO = 80 hours

- It makes no sense to earn PTO while exercising PTO, SO: You calculate earning PTO based on the total hours for the year minus the PTO. For example, if someone is earning two weeks off, that means that their PTO accumulates enough during 2000 of work to earn them the other 80 hours of the work year.

- In this example, an employee would earn 1 hour of PTO for every 25 hours worked. If they are on salary you simply assume that they're being paid for 40 hours a week, so they accumulate 1.6 hours of PTO per week.

- If you pay bi-monthly, there are 24 pay periods. If folks are paid hourly, you need to have a spreadsheet to keep track of hours earned and PTO accrued. If they're on salary, then you assume about 83.33 hours per pay period, and they accumulate 3.33 hours of PTO per pay period in order to accrue 80 hours in 50 weeks.

Additional Notes on PTO

I just have three additional thoughts here. I have known more than one person who tracked their accumulated time offer down to the quarter hour. One person even then used that time off to take fifteen minutes here and fifteen minutes there in order to avoid being marked as arriving late for work or late coming back from lunch.

Believe me, this did not happen inside a company I owned. But people like that are out there. Once the organization is large enough, the law of large employee numbers guarantees that you'll find someone who will figure out how to use your system to make your human resources life miserable. Obviously, this is one manifestation of an attitude that says this person doesn't enjoy the job and probably cuts a lot of other corners as well.

At the other end of the spectrum are people who accumulate time off and never take it. You have to decide whether you will force them to take time off, pay them for it, or let it accumulate forever. Some companies limit accumulated time off to a certain number of days or hours. This becomes a "use it or lose it" situation.

The sad part is that these most-dedicated employees actually lose out on this benefit because they can't bring themselves to go on vacation! You know me, I think people need to have well rounded lives. So I encourage them to use up their vacation.

Finally, you have to decide what to do about accumulated time off when someone leaves the company. Do they get to keep it? If they quit, do they get paid for half of it? Putting limits on this kind of this may be regulated by your state or local government, so look into that before you write a policy that could get you in trouble.

- - - - -

This is the kind of topic that seems obvious when you're an employee. But it can be very complicated when you become an employer. It's especially difficult because employers who offer paid time off end up with a certain number of headaches around this topic no matter what. So while trying to give employees and additional benefit, they end up creating a certain level of frustration. Sometimes there are questions of fairness no matter what you do.

Just try to make your policies as clear and fair as you can.

Comments welcome.

- - - - -

About this Series

SOP Friday - or Standard Operating System Friday - is a series dedicated to helping small computer consulting firms develop the right processes and procedures to create a successful and profitable consulting business.

Find out more about the series, and view the complete "table of contents" for SOP Friday at

- - - - -

Next week's topic: Team Management of SOPs


Still the best Quick-Start Guide to Managed Services: 

by Karl W. Palachuk 

Now only $39.95 at SMB Books!


  1. My wife's company does it in a most interesting way.... any eligible hourly employee, gets a check sometime in January for their PTO for the upcoming year, and then no paycheck when they take the time off.

  2. That's a good idea. Very generous as well, since the benefit might not actually be earned. If you have the cash flow, it might be worth trying.

  3. Well it depends from company to company. In our company an automated tool is being implemented that makes the time tracking, management and payment based on that as well in an automated form. The bank accounts are synced where in the respective amount gets transferred automatically to the account. The tool that is managing all these terms is the cloud based time tracking software from Replicon -

  4. This comment has been removed by a blog administrator.


Feedback Welcome

Please note, however, that spam will be deleted, as will abusive posts.

Disagreements welcome!