How Employee Compensation Works

Paid Time Off

You'll spend about 10% of your payroll on paid time off. Paid time off is a very highly rated benefit, especially with so many workers trying harder to balance work and family life.

Most companies provide paid holidays for all of their employees. The national average is 10 1/2 paid holidays per year. These are typically New Years day, President's day, Memorial day, Independence day, Labor day, Thanksgiving day, the day after Thanksgiving day, Christmas Eve, and Christmas day. In addition to standard holidays, some companies also provide one to two floating holidays or personal days. These days can be used whenever the employee would like to use them and often make up for religious holidays that are not part of the company's standard paid holiday schedule.

The average number of vacation days provided for new employees is 10 per year, with increases to 15 after five years and 20 after 10 to 15 years. Vacation time is accrued on a monthly or quarterly basis, and most companies use a calendar year to make their recordkeeping easier.

When cold and flu season strikes, your employees will begin taking advantage of the paid sick days you're offering. Most companies provide 6 to 9 sick days. Unlike vacation time, the number of sick days companies offer typically doesn't increase as the years go by, and if you set a policy of not carrying over unused sick leave to the following year, be prepared for a lot of sniffles in December. Some companies allow employees to use their paid sick days to also take care of family members who are ill. Make sure you set a policy and stick to it.

Some companies (about 25%) offer one larger lump of paid time off (PTO) that can be used however the employee sees fit. A typical scenario might be to provide three weeks of paid time off for the first five years, then step up the amount to four weeks after 10 years, and so on.

In either the paid vacation or PTO situations, employees would have to request the time off in advance, except for emergencies. The time can typically be taken in half-day increments. The time is accrued on a monthly or quarterly basis and banked until the employee uses it. If the employee leaves the job, the employee is usually paid for the banked time.

Whether you allow unused vacation days or PTO to carry over to the following year is up to you. Some companies allow a certain number of days to carry over, but any days over that number are lost. Others allow employees to get special permission from their managers to carry over days with the stipulation that they be used by a certain date the following year. Carrying over sick days from one year to the next is another issue to wrestle with. Take into consideration the impact it would have on your company to have employees out for extended periods of time with full pay because of stored sick or vacation pay, this in addition to having to cover for the loss of their productivity. Also remember that carrying forward these banked days to another year can create headaches for your bookkeeper, accountant, or controller.

Read on to learn about other benefits.