ASSIGNMENT 2: PAID TIME OFF (PTO) POLICIES

Assignment 2: Case Study Paid Time Off (PTO) Policies

George L. Burga
Prof. Deborah Voyt
Human Resource Management & Talent Development
Argosy University
November 18, 2015

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TO: Companys Chief Executive Officer (CEO)

FROM: George L. Burga, Human Resource Director
DATE: November 18, 2015
SUBJECT: Companys new paid time off (PTO) policy
In light of the two different PTO systems currently in place as a result of the companies merger,
the Human Resource Department has been requested to analyze and evaluate both the traditional
leave system and the paid time off typed system. Taking into account important factors such as
the companys long-term strategic business plans, legal requirements, feedback from the
employees, and the location of the company, the human resource department will make
evaluations and analysis of potential issues that may arise if leaving one of the systems in place
or merging the PTO system into the traditional leave one. At the end, this memo will make
recommendations for the creation and the implementation of a common PTO policy system
which will solve the problem of the two different PTO systems currently in place in a fairly and
legally way for both the company and the employees. This new common PTO policy system will
be consistent with the companys goal which is to reduce the number of unscheduled absences
among employees by providing employees with paid time off from work that can be used for
vacation, holidays, or sick leave while ensuring productivity and commitment from the
employees.
Additional information needed in order to find a solution
1. Federal and state legal requirements
In order to find a fair and effective solution, it is important to take into account the companys
location place in order to meet all legal requirements. Since the acquiring company company B
was founded in San Francisco, California, United States, the merger company must comply
with both U. S. federal legislation and California state legislation. Since there is no federal laws
in the U. S. that require employers to provide paid leave, special attention should be given to the
state legislation (Perlak, 2014). Therefore, the companys PTO policy must be consistent with
California State law. This information can be found in the following governments agencies
websites:
-

U.S. Department of Labor [Link]

California Department of Labor [Link]
California Department of Industrial Relations / Labor Commissioner Office
[Link]
California Employment Development Department [Link]

2. Feedback from the employees

The company must keep in mind that PTO benefits are voluntary benefits offered to employees
in order for the company to stay competitive and to retain employees. Therefore, the employees
preferences and feedback regarding paid time off do matter (Cascio, 2013). Feedback from the
employees regarding the existing PTO policies can be obtained directly from them, by creating a
focus group from both companies and conducting surveys which will provide valuable input for
the foundations of a common PTO system for all employees (Retrieved from URL).

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3. Companys goals and PTO costs after merger

It is important to consider the new companys goals after the merger in order to create a new
common PTO system that will be consistent with them (Cascio, 2013). Also, the PTO costs for
the company after the merger will be different since there would be a variation in the number of
employees and also unavoidable costs due to legal requirements which the company must
comply with. Thus, evaluation of the companys goals and PTO costs after the merger is relevant
to create a common PTO system. This information can be obtained directly from the
Management and Administration Department.

Potential issues that the company would likely encounter if it were to merge the PTO
system to a traditional leave system
-

The separation of paid time off into different categories of a traditional leave system will
create dissatisfaction and unhappiness in some employees, who will find this system less
flexible than the PTO system due to the usage limitation on the number of time off days.
A traditional leave system requires also an intensive administration by the company,
making it sometimes more difficult to implement than a PTO system (Retrieved from
URL).
A traditional leave system may also incur in additional costs for the company since in this
system the company is liable to pay for some accrued time off upon termination of
employment. Also, under this system, the company offers more number of paid off days.
There could not be a limitation on the number of sick leave days since new California law
that entered into effect on July 1, 2015, makes sick leave pay mandatory and further
regulates it. According to the new law, an employee who, on or after July 1, 2015, works
in California for 30 or more days within a year from the commencement of employment
is entitled to paid sick days for prescribed purposes. (Governors Office of Business and
Economic Development).
However, sick leave can be lost if not used at the end of a designated period of time and
the company does not need to pay it after termination of employment. This may further
create discontent among employees who may prefer to call in sick even if they are
healthy in order not to lose their sick days which they feel they are entitled to by this
new regulation. Therefore, not payment of sick leave accumulation time upon termination
of employment is a difficult situation to solve, too, because it may increase absenteeism
of healthy employees who may not want to lose their sick paid days because there is no
accumulation of days and they would not be paid if the employment is terminated.
Holidays could be also a problem. Employees from the PTO system which probably do
not matter working on holidays since their company was not closed during holidays
but now find themselves kind of forced to take holidays off because the acquiring
company is closed during those days but they would more likely prefer to have the PTO
systems flexibility to take time off during other days that they would need most.
In California, carrying over paid time off to the following year is at the employers
discretion, which may result in workers from one system to feel that they are being
treated unfairly (Perlak, 2014).

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Potential problems if both systems are left in place and which one should be assigned
Even though employees from the two merging companies are used to their companys paid time
off different policies, both systems cannot be left in place since it will create a negative impact
on the company, such as legal consequences. These are the potential problems of leaving the two
systems:
-

The company may encounter negative legal issues due to the employees feelings of
unfairness and different ways of payment due to the different accumulated days schedule
and their entitled payments upon termination. As a result, the company may face legal
issues with the employees who may claim that they are being discriminated.
There would be different ways of accumulation days every month, which will cause more
difficulty for the companys administration.
Some employees from one system may want to be placed in the other system due to their
personal preferences, causing an unbalance in both systems costs and in the number of
employees which will create more difficulty in the administration of both systems.
The holidays paid days will be a problem because employees from one system may feel
that they are not being paid for certain holidays covered under the other system.
Sick leave will also be problem because since the new California legislation mandates
payment of sick leave time, employees from one system may feel they have less paid
time off than employees in the other system.
Since the Labor Commissioner considers the entire sum of PTO to be vacation, the entire
amount of accrued but unused PTO granted to employees must be paid out at the
termination of employment (Governors Office of Business and Economic Development).
As a result, the company may incur in differentiation in payment upon termination of
employment due to the two different systems, which will result in potential negative
issues against the company.

After evaluating and analyzing both systems currently in place in the company, the Human
Resource department recommends that the traditional leave system be assigned for new
employees since it is more consistent with federal and state regulations, offers a better separation
of the paid time off into categories, and seems to be better suited with the companys and
employees preferences and needs. Even though it may seem more difficult to administer and
implement at the beginning, this system will clearly help the company to keep track and control
the employees absences, which in turn will reduce the number of unscheduled absences more
effectively than the other system.

Recommendation for a common PTO system which is the best for the newly merged
company

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In light of the evaluation and analysis of both the PTO and the traditional leave system, taking
into account the potential issues that may arise from leaving both of them in place or only one,
and based on industrial practice experience, the Human Resource department has concluded that
the best system for the newly merged company will be a similar system to the traditional leave
system, which further incorporates policies in accord with California state laws.
Accordingly, the newly merged companys common PTO system will consist of the following:
-

In compliance with California new state law, the company will provide paid sick time,
which will be accrued at 1 hour per 30 worked hours, which have unlimited accumulation
over a year period but which cannot be carried over the following year. Paid sick time
will not be paid upon employment termination.
Three (3) additional paid sick days, which neither can be accumulated for the following
period nor will be paid upon employment termination.
Twelve (12) vacation days, which will be accumulated at a day per month. Vacation days
can be carried over the following year but there will be a limit on the number of days that
can be accumulated per year, being the maximum 6 days in a year period. Also, vacation
time will be paid upon termination of employment.
After five (5) years of employment, the employee may be entitled to three (3) additional
days of vacation per year, which will increase on this basis on every 5th anniversary.
Employees are entitled to family leave, as mandated by the State of California. Per this
regulation, all employees who need time off from work to bond with a new child or to
care for a seriously ill family member, are entitled to up to six weeks of partial pay
(Appelbaum & Milkman, 2004). Per the law, the company will pay up to 55% of the
employees salary.
Eight (8) holiday days will be paid during the year, which are the following: New Year
Day, Memorial Day, Independence Day, Labor Day, Veterans Day, Thanksgiving Day,
Christmas Eve, and Christmas Day. The company will remain closed during these
holidays.
Three (3) personal days, which can be used after 90 days of employment with the
company. These days can be accrued for the following year but will not be paid upon
employment termination.
The employee must file an Absence Report for every absence incurred which will use
paid time off and explain the reason in order for the Management Department to keep
better track of absenteeism (Perlak, 2014).

The Human Resource department recommends this common PTO system for all employees in
the new merged company since it best suits the companys and employees needs while being in
accordance with both federal and state laws. Moreover, this new system takes into account the
new mandated sick paid time accrued per hours worked in California. However, it grants
employees three additional days that can be used if they themselves get sick or a close relative
that they need to care of. This extended sick paid leave is granted taking into account that
employees feel that most of the time they need additional days in order to attend follow-up
appointments after recovering from an illness and the fact that they express that both themselves
and close relatives tend to get sick more often during winter, which is very cold in San Francisco.

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The additional three vacation days after five years of employment is given as an incentive to
keep workers happy and committed with the company, which in turns guarantees more continuity
and productivity in their jobs. On the other hand, the company will grant only eight holiday paid
days (instead of ten from the acquiring companys traditional leave system) in order to balance
the additional three personal days that it will grant to all employees. In this way, employees
retain some flexibility since they can take their personal paid days during any time of the year
when they need it. At the same time, it does not cause a big cost increase to the company since in
reality the company is only paying for an additional day due to the reduction in holiday paid
days. Furthermore, the policy that allows employees to accumulate personal days into the
following year period seeks to reduce absenteeism from employees who really do not need to
take those days off but who would take them in order not to lose them during the year. Lastly,
the requirement of having employees file an absence report for every paid time off taken will
help the company to keep better and effective track of all absences and to prevent unscheduled
absenteeism in an effective and fair way.

References

Appelbaum, Eileen; & Milkman, Ruth. (2004). Paid Family Leave in California: New Research
Findings. University of California Institute for Labor and Employment. UC Berkeley:
University of California Institute for Labor and Employment. Retrieved on November 18,
2015 from [Link]

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Burga, George L. (2015-11-16) You asked for it You got it .PTO redesigned. Retrieved from
[Link]
Burga, George L. (2015-11-17) Paid Time Off Programs and Practices Survey 2014. Retrieved
from [Link]
Cascio, Wayne F. (2013) Managing Human Resources. McGraw-Hill. New York: New York
Fass, Sarah (2009) Paid Leave in the States: A Critical Support for Low-wage Workers and
Their Families. Columbia University Academic Commons. Retrieved on November 17,
2015 from [Link]
Governors Office of Business and Economic Development. Retrieved on November 16, 2015
from
[Link]

Heathfield, Susan M. (Sample Paid Time Off (PTO) Policy Guide - Human Resources. Retrieved
on November 18, 2015 from
[Link]
Perlak, Elizabeth (2014). Five things to consider when creating a PTO policy. HR Best
Practices. Retrieved on November 18, 2015 from

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[Link]