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Seize the day: Assessing leave programs in a COVID-19 world

Health and Benefits|Total Rewards
COVID 19 Coronavirus

By Jackie Reinberg | July 2, 2020

We share basic tenets of time away policies and suggest some steps employers can take as they navigate COVID-19-related challenges.

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About our Hit Reset on Health and Group Benefits series

This series covers opportunities for employers to evolve their employee benefits strategies as we emerge from the COVID-19 crisis. Our experts will provide recommendations on actions employers can take as they re-evaluate benefits priorities, financing and employee needs.

As employers navigate COVID-19-related challenges, they are questioning how employees’ need for time off will be affected by federal and local laws, health and safety issues and talent availability. Plus, emotional wellbeing of employees is of utmost concern, so many employers are hitting the reset button on leave policies. Specifically, they are objectively reviewing this situation in the context of Total Rewards strategies in order to make needed adjustments and investments.

The starting point for analyzing time off programs begins with an understanding of the total spend for employees who are on leave, whether the time off is for vacation, disability or care for a family member. The cost for paid leave benefits is often an employer’s largest expenditure, even exceeding healthcare. There is not a one-size-fits-all approach to leave and depends on an employer’s demographics, geography and industry.

Rethinking time off and leave in the wake of COVID-19

Jackie Reinberg discusses why employers should assess their leave programs.

To reflect COVID-19’s impact on the transformation happening in the world of work, this article shares basic tenets of time away policies and suggests some steps for employers to take. There is a sense of urgency to address leave, and employers are wise to consider immediate, and interim needs as well as long-term strategies when reconsidering their priorities and programs.

Paid time off: Paid time off (PTO) is the most emotional of benefits and impacts all employees. How these programs are structured may or may not be intuitive. Typically, we think of vacation/PTO programs in two key configurations:

  • Traditional, which includes separate entitlements and accruals for vacation, sickness, holiday and personal time
  • PTO, which creates one aggregate entitlement

There is not a silver bullet to determine which structure best fits an organization’s needs.

Leave — All time away from work: Organizations generally modify their leave plans once a decade unless triggered by M&A, new legislation or a change in talent needs, including recognition of a far more diverse workforce. It is important to note that leave programs should integrate and be easy for an employee to understand how they fit together. During the COVID-19 crisis, employers, who furlough or lay off employees can allow their employees the option of taking their PTO/vacation/sick leave before they go to unpaid status.

However, when an employee is receiving any pay, they are not eligible for unemployment until they go into an unpaid status. Depending upon an employee’s compensation, he or she may make different choices about deferring available paid time off or taking it immediately. There can also be ripple effects on other benefits and taxability, especially if employee contributions are not collected for furloughed employees.

According to Willis Towers Watson 2020 COVID-19 Benefits Survey, there are several employer responses to leave and vacation/sick leave/PTO policies.

  • Our research, supported by observations of our clients’ actions, is that the majority of employers are not changing their PTO/vacation plans unless mandated by law. Instead, they are encouraging employees to take their vacation/PTO. Additionally, employees will lose the time if not used
  • 42% have made or plan to make changes to vacation/sick leave/PTO programs to boost flexibility
  • 50% plus of the employers making changes are taking actions to address the anticipated surplus of vacation/PTO hours at years end
  • Enhancing flexibility in program design by allowing negative balances and increasing accruals is top of mind for many employers
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Managing excess time off

Employers need to be mindful that employees may hoard their vacation/PTO or schedule elective procedures, which can result in productivity challenges at year end. Employers need to factor in the potential impact to the balance sheet to account for carried-over or deferred vacation/PTO.

It is clearly understandable based on the first half of this year why employees may opt to defer using vacation/PTO. However, evaluating actual year over year usage near the end of the summer is key to understanding perception vs. reality. Employers, who have employees building large banks of vacation/PTO have several options; allowing for additional cash out, carryover or accruals. Others are considering donation banks, buy-sell programs, mandated shutdowns, furloughs, and capped accruals or layoffs. For employees with caregiving responsibilities, the challenges are heightened, and some employers are adopting flexible and compassionate policies that allow employees to go negative with vacation/PTO balances and dip into future accruals.

Employers are encouraging employees to take vacation/PTO citing the importance of time off for their wellbeing.

The topic of PTO/vacation/sick leave is like an onion, once you start peeling, there are additional layers to consider.

The employee perspective is also especially important. Today, many are frustrated and do not want to have to take, what in their minds is “pretend time off” or staycations, given current health concerns and associated travel restrictions and risks. Employees feel they have earned their vacation/PTO and believe they should choose how to use it and when.

As employers take all the above into consideration and look to possibly update their vacation/sick leave/PTO approach for the current, short- and long-term future for these programs, the following are some key steps to consider:

  • Know your demographics: Understand your employee demographics. Their diversity and skills are critical to igniting your talent engagement workforce planning.
  • Review your time away from work policies: Determine if changes are needed in the structure or provisions, inclusive of benefit(s), the accrual, carryover and how benefit continuation will align with your PTO/vacation/sick/holiday/parental/short-term disability or other company leaves and how they will all integrate, recognizing the design will drive employee behavior.
  • Quantify your financial baseline and the impact of potential changes: Identify your current benefit costs and the potential adjustment in spending to create a compelling business case for change.
  • Define the compliance issues: Evaluate the complex maze of federal, state, city and municipal leave laws that are relevant to your leave policies and map to your geographic footprint, including sick and safe leave laws, family medical leaves, Americans with Disabilities Act Amendments Act (ADAAA), military, statutory disability, paid family leave, statutory paid time off payouts and parental leaves. Identify the provisions; if the leave is paid or unpaid, provides job protection, runs concurrent with other leaves, and the administration and eligibility requirements. Finally, recognize that implementing a generous policy like unlimited PTO does not relieve you of notifications or the administrative burden of tracking like documenting a sick day and reflecting it on a paystub.
  • Create adequate lead time for systems and communications: Do not underestimate the amount of resources and time required to update systems and most importantly, to communicate changes. These programs are personal and depending on the magnitude of change, there is potential for employee noise. Managing the timing, content and clarity of the communications requires thoughtful planning and follow through. Even positive changes like a new caregiver leave will have an effective date and someone will miss the eligibility window and feel neglected.
  • Notify your vendor(s): Communicate any anticipated changes to your vendor partners if you expect them to have a role in the process and determine their internal timing requirements for system updates, lead time for training, as well as determining any impact on rates as they have a part in delivering the employee experience.

Since we cannot foresee the future or predict if we will have another spike of COVID-19 cases, it is essential for employers to make well-informed workforce decisions, with contingencies, especially when it comes to leave.

Carpe Diem. In other words, seize the day, the clock is running. The time to plan is now.

Author

Jackie Reinberg
Senior Director & Absence, Disability Management and Life Leader - North America

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