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September 4, 2001 Issue

How Do Paid Time Off Plans Fit into My Total Compensation Strategy?

According to research provided by WorldatWork in various issues of Workspan (http://www.worldatwork.org), unscheduled absenteeism continues to increase, with family issues and personal needs accounting for nearly 50% of all employee no-shows. The cost of this increase has taken its toll on many organizations. With the economy at its current slow pace, this is a cost many cannot afford.

In addition to cost, there is a greater impact in terms of overall morale and employee relations. While we spend energy attempting to determine how much to pay our employees, for many these areas are as or more important. Employees have to deal with increasing work/life issues and balancing the needs of their organization and their family. Recent reports state that the American worker spends twice as much time on the job than any of their counterparts around the world. The highest unscheduled absenteeism rates (unscheduled time off divided by total scheduled time) can be found in Utilities (3.45%), Universities (3.39%), and Government (3.05%). Healthcare (1.79%) has the lowest rate of unscheduled absences.

Organizations pay a significant price for unscheduled absences. WorldatWork reports that the median direct cost for an unscheduled absence is $572 per employee, with a maximum of $757 per employee. There are also indirect costs associated with unscheduled absences, including overtime or temporary help to make up for missing work time, lost managerial time devoted to coping with disruptions in work schedules, and decreased productivity caused by delayed meetings or missed deadlines.

Based on a survey of Human Resource executives, the primary reason behind these absences (22%) is personal illness. However, employee surveys show personal and family issues account for 46% of the unscheduled absences. Stress was cited at 16%, dramatically increasing over the past few years. Traditional sick plans have increased the number of unscheduled absences. An employee may be aware of a personal or family issue in advance, but some traditional plans require the employee wait until the day of the absence to call in "sick."

So what is an HR professional to do? Here are some helpful hints.

Take a look at your current sick leave policy to see if it encourages costly unscheduled absences. Consider paid leave banks as an alternative.
Train supervisors to be sensitive to lifestyle issues and signs of stress in the job. Supervisors should be trained to recognize the signs of employee stress in advance and address appropriately.
Give employees the tools to deal with personal needs. Provide wellness and fitness programs in-house.
Examine company workflows and culture to increase flexibility. Consider flextime, compressed workweeks, job sharing, and telecommuting.
Get families involved in the workplace. Keep families in the communication loop on issues impacting employees.
Reduce stress by giving employees some control over their work lives. Communication about the company's direction and the skills that will be needed in the future allows employees to make informed decisions about their careers.

The most common strategy today for dealing with unscheduled absences is Paid Time Off Banks. Paid Time Off (PTO) programs reduce unscheduled absences in the workplace by helping employees balance work and non-work pressures, while helping employers to control absentee costs. The popularity of these programs is growing because the system provides employees with a better balance between home and work life.

The basic concept of PTO banks is that employees receive a "bank" of hours to use instead of separate accounts of sick, vacation, and personal time. Usually, the employee is provided the same total time off hours as in a traditional sick/holiday/vacation program, but the employee can choose how to use this time.

Traditional paid time off plans foster an entitlement mindset. Employees feel that the time is due them. Many companies state in these programs employees are "granted" a set number of sick days per year.

PTO programs create an environment of "shared accountability" between the organization, the manager, and the employee. The primary downfall of PTO programs has been the unlimited ability to bank time year to year. This has created a growing, and almost out of control liability for many organizations. The total time in the employee's PTO bank must be accounted for in each year's budget. This is especially true if the program allows employees to "cash in" their time when they leave the organization.

So how should this be applied in developing your organization's total compensation strategy? As with retention and recruitment strategies, it is incumbent upon human resources to better forecast the direct and indirect impacts of human resource programs. Analysis should be conducted to determine the indirect cost of unscheduled absenteeism on the organization. Meet with managers to determine the level of overtime, temporary employee usage, and other impacts on departments. With this analysis complete, add the direct cost of paying the employee for time off. Compare to the cost of implementing a paid time off program.

In addition, determine the level of management ability to recognize and address workplace stress impacting employees. The cost of training and developing managers to better understand these issues should also be incorporated in your total compensation strategy design cost.

Finally, talk and listen to your employees. What are the issues they are facing? What are their priorities? How can the organization address their needs? Determine what aspects of human resource and compensation programs are important to your employee population. Be prepared to develop multiple programs to address different types of employees.

Time off programs are a critical part of an organization's total compensation strategy. The right program, with the right mix of direct compensation, can provide for an effective total compensation program.

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ISSN Number 1549-0467