Vrakas CPAs, Here Are Your Articles for Wednesday, December 07, 2016
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How to Organize Vacation and Sick Time

 

Time-off benefits can be a very valuable part of any employee benefit package. While employers aren't legally required to give employees days off for federal or state holidays, it's a smart way to retain employees and to provide job satisfaction. Employers can specify which holidays employees can take off. It's the same for vacation: There's no requirement, but smart employers grant paid vacation, and sick days too.

Still, time off is a particularly delicate subject for small businesses: If there are only two employees and one goes on vacation, a third of the workforce is gone. Planning and coordination are critical when offering vacation benefits.

Companies can use different kinds of systems for time off. Some often have a set number of vacation days and a separate number of sick days that employees may use without losing pay. But today, many companies are using a more catch-all system of paid time off — all vacation days, sick days and personal days are lumped together.

Benefits of using this bank of time-off days method include:

  • Employees see it as a benefit if communicated well. It feels like an improvement over separate accruals, because a worker can theoretically take more vacation time if he or she doesn't get sick often.
  • Employees no longer have to make excuses when they want to use a sick day but aren't ill enough to see a doctor.
  • The system often is easier to administer up front — there's no question about which accrual the leave comes from. Simpler administration can mean cost savings and consistency in leave tracking.
  • Employee burnout can be reduced if employees are encouraged to use these days.
  • Employees report feeling more empowered — not having to justify each day off, taking their days as needed, and allotting vacation, sick and personal days as they see fit.

Issues and drawbacks:

  • Some employees may feel slighted if sick days weren't previously monitored closely under a system of separate categories. They may feel penalized by having sick days count against their days off.  
  • This system could mean higher financial liability when terminating employees. With separate accruals for vacation and sick days, employers are usually required to pay out only accrued vacation days, not unused sick days. This way, the whole accrued bank must be paid out.
  • Employees tend to view the bank as vacation days and so may take more time off. But while extra days taken as vacation can benefit employees and employers alike, they also can mean more time that must be covered by colleagues. Employers may have to modify work practices to accommodate this.
  • Employees may be reluctant to take sick days if they see this as lessening their vacation time. This means working while feeling ill.

If a company decides to go with a separate vacation and sick day system, then the amount of vacation time that employees are given is really up to the owners. Most employers link the length of time that an employee has worked for them to the amount of vacation afforded. Ten vacation days might be offered after one year of service and increased by one vacation day for every year of service. At milestones of service — five and 10 years, for example — employees earn an additional week of vacation.

Because small businesses are more affected by vacationing employees, decisions need to be made about how to arrange vacations. If employees want to take all their vacation days at one time, that takes more planning than taking just a few days here and there. What if employees want to take vacation during a busy period? You need a policy, and a fair system, in the event two employees want to take the same week off.

Generally, paid sick leave benefits and personal time off are not required by law. Unpaid sick leave, however, may be legally required if a business is subject to either federal or state family and medical leave laws.

Keeping track of who is off work, how much time each employee has used and the vacation schedule for the business year can get complicated. Organizing it is the tricky part. Employers want to reduce the time they spend tracking time off.

 
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Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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