How to Offer Fair Time Off As a Small Business

Providing Adequate Sick Leave

Check your obligations under state and federal law. The primary federal law with which you must be familiar is the Family and Medical Leave Act (FMLA). Many states have similar laws that may include additional requirements beyond federal law. As a private-sector employer, FMLA applies to you if you have more than 50 employees who worked 20 or more work-weeks in the preceding calendar year. As a small business, your employees may not be covered by federal law. However, state labor laws typically apply to much smaller businesses and may have much the same, if not stricter, requirements than those of the federal law. The state law that applies to your business is that of the state where your business is located. You may operate close to the border between two states, but it doesn't matter which state your employees live in – it only matters where they work. FMLA only requires you to provide qualified employees with unpaid time off. Any paid time off you offer is your choice, and you may require employees to use up or substitute paid time off before taking FMLA leave.

Research sick-leave programs of similar employers. You compete with businesses similar to yours for the best and most loyal employees. Offering sick leave that is at least as good as theirs, if not significantly better, can give you the upper edge. Typically small businesses provide fewer than 10 days of paid sick leave per year for qualified employees. When you're deciding how many sick leave days or hours to provide, you also want to consider whether you'll require proof of some sort of medical reason for taking that leave, or whether you'll simply allow employees to take accrued time off for any reason. If you have hourly employees, it may make more sense for them to accrue hours, rather than days, of paid sick leave. This also can allow employees to take partial days for obligations such as doctor's appointments that don't necessarily take an entire day to complete.

Determine whether to vary sick leave among employees. Depending on your internal hierarchy, you may want to offer different levels of sick leave for different classes of employees. This can reflect an employee's rank in your organization or other factors. For example, employees who have regular and frequent hands-on contact with the public are more likely to become sick as a result of being more exposed. You may want to offer additional sick leave opportunities for these employees. You also may want to use an increased amount of sick leave as an additional benefit for employees in supervisory, managerial, or executive positions. If you plan to vary sick leave, make sure you're keeping those amounts identical for employees in the same classification to avoid potential discrimination complaints. You also want to consider when employees will become eligible for sick leave or any other paid time off initially. Some companies allow employees to begin earning sick leave and vacation time after as little as 90 days of employment, but most require employees to work for six months before they earn these benefits.

Decide how long accrued time will be valid. While you've decided how many days or hours of sick leave employees will accrue each year, you also need to decide if those leave hours will eventually expire or if they can be accrued indefinitely. Most employers don't allow employees to continue accruing paid time off, regardless of how that time is labeled or categorized, indefinitely. The main reason for this is that you typically have to pay employees for accrued hours when they leave or are terminated. The prospect of having to pay a terminated employee for weeks or even months of accrued time off could break a small business payroll budget. Typically, accrued time remains valid for at least one or two years from the date accrued. Some employers have "use it or lose it" style paid-time-off policies in which each employee's accrued time zeroes out every year.

Consider including other options. It isn't always necessary for an employee to take an entire day off work due to a personal illness or to care for a sick child or family member. Other options such as enabling employees to work from home can increase the value of limited sick leave. Office employees often can perform many of their job duties from home. However, if you operate a retail store it might not be possible for customer service employees to work from home. Other options include offering flex time, which enable employees to work split shifts or non-traditional hours so they can fulfill other obligations or spend time with their children. These arrangements often are easier to make with employees who are paid salary, since you're not paying them for a specific number of hours worked. You may be uncomfortable allowing hourly employees to work from home because of the lack of ability to supervise them.

Providing Paid Vacation Time

Cover major holidays. At a minimum, you want to offer your employees paid time off for major holidays, such as Christmas Day and Thanksgiving Day, even if your business will remain open. Decide specific holidays that will be included, and whether employees will be allowed to work as well as getting paid for the holiday. Many employers also include Memorial Day, Independence Day, Labor Day, and New Year's Day among paid holidays. Keep in mind that if you don't pay employees for holidays, they typically won't take many of those days off anyway. Some employers offer employees the ability to work on major holidays on a volunteer basis and receive the day's regular pay plus the additional holiday pay. The situation is different if you don't plan on opening your business on major public holidays. In those cases, employees can't work even if they want to do so. Paying employees for holidays tends to be more important in that context.

Determine which employees will be eligible. You may want to reserve paid vacation time as a perk for managerial or executive-level employees, with some amount of unpaid vacation time available for other employees. At the same time, you should keep in mind that if you're going to offer vacation time at all, unpaid vacation time doesn't really enable many employees – particularly lower-paid ones – to take any kind of vacation. You also can allow different amounts of paid vacation time for different classifications of employees. For example, you may offer one week of paid vacation per year for regular employees and two weeks of paid vacation per year for managers. You also may want to keep paid vacation time asa reward for longevity. For example, you may allow employees to begin accruing paid vacation time after having worked with your company for a full year. For hourly employees, you may want to allow them to accrue hours, rather than days, of vacation time.

Consider offering a combination of paid and unpaid time. Offering both paid and unpaid time can enable your employees to create a combination that enables them to take a more extended trip without imperiling their finances. Unlimited vacation time is one trend, typically offered to salaried employees or as unpaid time for hourly employees. Another trend is requiring all employees to take a specific amount of time off, such as one week or 10 days, each year. Since no state or federal laws require you to offer your employees any specific amount of paid vacation time, you're free to develop a creative program that best fits the needs of your business while at the same time offering fair benefits for your employees.

Decide whether to allow employees to cash in unused time. If employees are allowed to accrue vacation time over several years, you might want to enable them to get paid or those hours without actually taking any time off, so they have a potential reserve of assistance available to cover unexpected expenses. If you are going to allow employees to cash in their unused time, you'll need to figure out a maximum number of days or hours employees can cash in during one pay period, the rate of pay that time is worth, and how long the employee must wait before cashing in the time. For example, you may want to require employees to wait six months after time is accrued before they cash it in. Maximum amounts of vacation time that an employee can cash in at once will depend on your business's payroll budget. Keep in mind that if you've determined accrued time will expire after a certain period, such as two years, some states require you to pay employees for any unused time that's set to expire rather than simply having the employee take the loss.

Evaluate the possibility of extended sabbaticals. Executives and other key employees might appreciate the ability to take extended leaves of absence to pursue other opportunities or fulfill obligations. Executives who have other obligations, such as political or community obligations, or those who volunteer significant hours to nonprofit organizations, can greatly enhance your company's reputation and image by having the freedom to take advantage of these opportunities. Before you establish a sabbatical policy, review your company's structure and organization to ensure that operations won't suffer too much if one or more of your key employees take an extended leave of absence.

Encourage a vacation-friendly workplace. Often it's not enough to simply offer paid vacation time. Employees must understand that they won't be penalized or looked down upon for taking advantage of this benefit. Mandating that all employees take a minimum amount of vacation time each year ensures your employees will make effective use of their paid time off. You also want to make sure that managers and executives are consistently using their accrued vacation time, and that they're open about using it. Implementing a "use it or lose it" type of policy, in which employees must use their accrued hours within a certain period of time or lose them entirely, may make employees more likely to take regular vacations.

Creating Clear Policies

Draft a universal time-off policy. Regardless of whether you've decided to make all leave options available to all employees, your time-off policy should provide a clear picture to all employees of the benefits available. Your policy should be in writing, and should be clear and easy for all employees to understand. If particular types or amounts of paid time off are only available to certain classifications of employees such as managers, including information about these benefits for all employees creates a sense of transparency and fairness, and also provides motivation for lower-ranking employees to further engage in the business. Include information about your paid and unpaid time-off policies in your written employee handbook.

Define which employees are eligible for which programs. As a small business, you may not be able to provide the same level of benefits to all employees. However, it's important that your employees understand which employees specifically are eligible for which benefits. Keep in mind you could open your business up to discrimination complaints unless you offer the same benefits to all employees in the same classification. While federal law doesn't require you to offer the same benefits to all employees, you do have to offer the same amounts of time off for similarly situated employees who do the same types of work.

List accrued vacation time and sick leave on pay stubs. Including total accrued time off on your employees' pay stubs is one of the easiest ways to keep employees informed on the hours they have available as well as protect your business from costly errors. Having this information on pay stubs means any employee will know at any time how many hours he or she has accrued and has available to use. If an employee believes they have accrued more time than is shown on their pay stub, they can mention it and have the situation resolved more quickly.

Describe the specific procedure for requesting time off. It's not enough to offer fair time off for your employees if they have no idea how to take it, or if it isn't clear when to give notice that you want to take time off and to whom such notice should be given. Employees need to know how to request time off, and who should receive notice of that request. Come up with a reasonable period of time in advance for employees to request time before they plan to take it. Typically at least two weeks is sufficient. At the same time, you need to decide whether you can refuse any vacation time that is requested. You have to be able to balance the needs of your business with the needs of your employees, and you can't have so many employees out at the same time that your operations suffer. Consider and create a rule for dealing with exceptions when employees are genuinely unable to provide adequate notice, such as an emergency medical situation, that will balance the needs of your business with the needs of your employees who are facing urgent demands.

Include required language regarding the FMLA. Federal law requires any written time-off policy to include certain information informing your employees of their rights under the FMLA. The laws of your state also may require additional information. If you're covered by the FMLA, you must include information about the amount of unpaid time off your employees are guaranteed by federal law, and outlining the process for requesting that time off. You also must list the name and job title of the person who is responsible for handling FMLA requests. Check your state's law to find out if there is any additional language regarding paid or unpaid time off that is required for businesses in your area.