The 2020 Guide to Offering Employees Paid Vacation Days

The 2020 Guide to Offering Employees Paid Vacation Days

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As an employer, you'll want to be sure you attract quality talent and you keep your employees happy. Offering vacation in your benefits package is one method to achieve both. In fact, the American Psychological Association reported that vacation days can help American adults recover from stress and experience positive effects that improve their well-being and job performance. It's a benefit with real and measurable effects.

What Is Paid Vacation?

Paid time off (PTO) is time during which employees are absent from work but still compensated. Employees can use this time for vacation, sick days or other personal matters. Most employers will continue to pay their employees their normal salary during PTO, and it's a competitive benefit to help attract the best talent in the market. In fact, many employees will likely measure their PTO benefits among different employers when choosing a place to work. Approximately 76% of private employers offer some form of PTO.

As an employer, you can either grant your employee a fixed amount of PTO from the start of the year or you can allow for PTO to be accrued. For example, if you offer 15 days of PTO and allow for that to be accrued, the employee will earn 4.61 hours of vacation time per pay period. This assumes there are 26 pay periods (biweekly) per year, which is fairly standard.

The amount of paid vacation days you offer will be dependent upon the cost of each day and what other competitors in your local market also offer. Plus, the number of days offered typically ranges with seniority. The longer you've been working there, the more days you accrue. For example, workers receive 10 days of PTO after one year of service, while workers with 10 years of service receive 17 days of PTO.

Average Number of Vacation Days Provided

Years of ServiceVacation Days Offered
1 tear10 days
5 years15 days
10 years17 days
20 years20 days

How Much Does Paid Vacation Cost?

Out of 6,600 businesses surveyed, PTO makes up roughly 7% of an employee's total salary. There isn't an outright cost to offering employees PTO, but there is a definitive opportunity cost. In other words, you lose out on the production the employee could've generated had they been working. That opportunity cost will vary with each employee depending on their role and production.

Let's say you own an IT business and you have an employee who sells your technology. Said employee brings in roughly $10,000 a month. If we assume that each working day goes directly toward that $10,000 monthly revenue, the employee brings in roughly $476 daily, assuming there are about 21 working days per month. Holding those assumptions, one could assume that each vacation day costs the business $476.

This isn't meant to be an exact model, but the framework of thinking should give you a directional sense as to how expensive PTO can be. Not every single day is as productive as another, and an employee can bring in the same amount of monthly revenue if they work 20 days versus 30.

Rules and Regulations to Follow

Every employer should be aware of leave laws they're bound by law to follow. Most leave laws are determined at the state level, and they can be categorized into the following:

  • Bereavements Leave
  • Blood / Bone Marrow Donation Leave
  • Court Leave
  • Crime Victim Leave
  • Voting Leave
  • Family / Medical Leave
  • Military Leave
  • Legislative or Political Leave
  • Paid Sick Leave
  • Pregnancy Disability Leave
  • Public Health Emergency Leave
  • School Activities Leave
  • Volunteer Emergency Responder Leave

We recommend you comb through your local state's laws. Many of the laws are pretty niche and likely won't be relevant to you or your employees, but researching them in advance and constructing a leave policy that fits local laws will save you time, money and effort in the long run.

Keep in mind that these leave days are traditionally supplemental on top of the paid time off you may offer. For example, if your state mandates that employers must provide a certain length of time off for employees for a medical emergency, you cannot deduct that time from their PTO pool. Conversely, be sure that your employees don't abuse such policies and that they always provide necessary proof if they claim to have special exceptions.

Federal Employee Leave Requirements

While most leave laws are determined at the state level, there are a few that impact businesses nationwide.

Family and Medical Leave Act (FMLA): Private employers with more than 50 employees are required to provide 12 weeks of leave due to an employee's serious health condition that prevents them from working, an employee needing to care for a family member with a serious health condition, the birth or adoption of a child, or a call to military duty for an employee or family member. In addition, an applicable employer must provide 26 weeks of leave if an employee needs to care for a military service member with a serious health condition.

Jury Duty: An employer is required to grant an employee the amount of time off that they are required to serve.

Uniformed Services Employment and Reemployment Rights Act (USERRA): Any employee that is required to take time off to serve military obligations must be allowed to return to work provided they give advance notice to the employer, the cumulative time away is less than five years, they are not dishonorably discharged, and they return to work within a timely manner.

Federal Holidays

There are several holidays recognized by the federal government.

  • New Year's Day (Jan. 1)
  • Birthday of Martin Luther King, Jr. (Third Monday in Jan.)
  • Washington's Birthday (Third Monday in Feb.)
  • Memorial Day (Last Monday in May)
  • Independence Day (July 4)
  • Labor Day (First Monday in Sept.)
  • Columbus Day (Second Monday in Oct.)
  • Veterans Day (Nov. 11)
  • Thanksgiving Day (Fourth Thursday in Nov.)
  • Christmas Day (Dec. 25)

Most employers will give their employees time off on federally recognized holidays, but those who don't will typically offer increased pay during that same time. In addition, some employers choose to offer smaller regional holidays as well. Holidays are traditionally separated from PTO.

Justin is a Sr. Research Analyst at ValuePenguin, focusing on small business lending. He was a corporate strategy associate at IBM.