Employers take another look at bundling vacation and paid sick leave 

Some things just go great together, like peanut butter and chocolate. When it comes to employee leaves, the classic pairing has been vacation and paid sick leave in one paid time off plan. In our 2021 Absence and Disability Management Survey, over half of the employers responding offered a PTO plan that included paid sick leave. However, growth in this plan model had slowed nearly to a standstill, and recent changes in the environment may be leading some employers to consider a PTO breakup – separating vacation and paid sick leave. What’s behind their thinking?

Let’s start with the reasons vacation and sick time were combined in the first place. Paid sick leave differs from vacation in that eligibility is tied to the employee’s minor illnesses, injuries or preventive care visits, while vacation time is for rest, relaxation and rejuvenation. Over time, paid sick leave use has expanded to include time away from work to care for a family member with an illness or injury or to accompany them to a doctor. One of the advantages of combining vacation and paid sick leave policies in a PTO plan is that employees have greater discretion and flexibility in using their time off. And it is usually easier to track and administer time off in a combined plan.

Now for the reasons employers are revisiting their continued use of a PTO plans:

Perceived stigma. There can be a perceived stigma around using sick days, which may discourage employees from taking time off when they are genuinely ill. Having a separate sick policy can help address this issue by explicitly providing time off for illness.

Paid sick leave mandates. Over the last decade, the number of states, counties and cities mandating employers provide paid sick leave has mushroomed. Along with these laws come accrual, reporting, notice and recordkeeping requirements. Even if the paid sick time requirement can be satisfied with an appropriate PTO plan, often the tracking and/or notice and recordkeeping requirements remain, complicating administration of the PTO plan.

States limiting vacation forfeiture. A number of states require employers to treat vacation pay the same as wages. That means accrued, but unused, vacation must be paid out at employment separation. In addition, some of these states don’t allow use-it-or-lose it provisions in a vacation policy, meaning vacation banks can get quite high if the policy doesn’t have an accrual cap, increasing the employer’s payout liability. By contrast, most paid sick leave mandates do not require carryover of unused paid sick leave from year to year or payout at termination. Because most states consider PTO plans that have no special designation to be vacation, they are subject to the same vacation forfeiture rules. Combining vacation and paid sick leave in these states increases the employer’s exposure to potentially large payouts of unused PTO at termination.

Before making any PTO plan changes, it’s worth noting that paid time off has emerged as one of the top five reasons why employees choose to stay in their current jobs. About one-third of employees believe more time off would support their mental health and ease burnout – separating vacation and sick can be viewed by employees as offering less time off.

While peanut butter and chocolate will always go great together, determining whether vacation and paid sick leave continue to be the perfect pairing for your organization and your employees clearly requires careful consideration.