High instances of sick leave and vacation leave are significant contributing factors to high employer benefit costs and low employee productivity. Various HCMS Group studies have shown that bundled paid-time-off (PTO) plans, as opposed to plans with separate banks for sick and vacation time, are associated with reduced absences, lower health plan costs, and increased employee productivity.
Optimally-designed PTO plans are often associated with less absence days. By allowing employees to cash in unused days with a bundled PTO plan, a mutually beneficial incentive is created for employees to be at work. Employees maximize their income by taking fewer absence days and employers benefit as each employee produces more value each day for the company than their daily salary.
HCMS Group studied the effect of two different time-off plans with two employee groups at a company. Prior to the switch, these two groups had almost identical absence experiences with the same set of policies. One group switched to a bundled PTO plan with a sell-back option while the other group stayed with the separate sick/vacation bank policy in place. The group that switched to the bundled PTO plan reduced its absence rate by 15-20% compared to the group that didn’t make the change.
Absense Days by PTO Plan Group
Health plan costs decreased while unplanned/sick leave days decreased and employee engagement increased. This phenomenon is particularly common when a PTO policy is combined with a high-deductible health plan with a health account.
Conclusion: Why a Bundled PTO Plan Works
Outcomes and support for the transition from a plan with separate sick and vacation time to a bundled PTO plan are extensive. Many sick-leave plans end up leading to higher medical costs since employees are actually required to visit the doctor to justify the use of sick leave. HCMS Group modeling predicts up to a 5% decrease in health benefit costs when transitioning from a time-off plan with separate banks to a bundled PTO plan with a cash-in option. Employees also benefit from having a bundled PTO plan. During a past bundled PTO implementation, an HCMS Group Fortune 500 employer client surveyed their employees and found that 85% of their employee population favored the new plan. Bundled PTO plans provide employees and their families with more flexibility while also providing the employer with higher levels of employee productivity.