- The cost of paid-leave benefits is often an employer’s largest expenditure;
- As employers manage the impact of COVID-19 on employee well-being and leave policies, they are also re-evaluating benefit programmes to accommodate long-term changes to work;
- How to manage excess time off or delayed vacation days is a critical challenge.
As employers navigate COVID-19-related challenges, they are questioning how employees’ need for time off will be affected by legislation, health and safety issues and talent availability.
With the emotional well-being of employees of utmost concern, 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 necessary adjustments and investments.
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The cost of paid-leave benefits is often an employer’s largest expenditure, even exceeding healthcare. It stands to reason, therefore, that the starting point for employers’ analysis of time-off programmes is to develop an understanding of the total spend for employees who are on leave. Individual organizations’ policies may vary considerably based on factors such as the employer’s demographics, geography and industry.
Companies are urgently addressing leave policies in the wake of COVID-19, but they are also addressing leave and caregiving priorities and programmes, recognizing the change in workforce demographics requires greater recognition of multi-generational needs and means thinking about interim and long-term strategies.
Flexibility is a critical tenet to employee and caregiver wellbeing. COVID-19 has magnified caregiver needs and solutions from the more atypical resources such as employee assistance plans, back-up child and elder care, and discounts and subsidies to broader initiatives, including onsite tutoring, concierge and virtual/digital self-service options as well as special care, child and parental leave and allowances. Providing alternative scheduling and work hours has become a focal point especially for those working remotely.
Paid time off (PTO) is the most emotive of benefits and affects all employees. How these programmes are structured may or may not be intuitive. Typically, we think of vacation or PTO programmes in two ways:
- Traditional, which includes separate entitlements and accruals for vacation, sickness, holiday and personal time;
- PTO, which creates one aggregate entitlement.
There is no one size fits all to determine which structure best fits an organization’s needs. But it is important to recognize that leave programmes should integrate, and it should be easy for an employee to understand how they fit together.
Organizations generally modify their leave (all time away from work) 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. Amid the pandemic and current spotlight on social injustice, many employers are revisiting their designated versus floating holiday schedules to consider observance of Juneteenth or election day. Additionally, some are considering an increase in volunteer days as a call to action to give back to the community.
During the COVID-19 crisis, employers who furlough or lay off employees can allow their employees to take their PTO/vacation/sick leave before they move to unpaid status. However, employees receiving pay are not eligible for unemployment until they are no longer being paid. Depending upon employees’ compensation, they 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’s 2020 COVID-19 Benefits Survey, there are several employer responses to leave and vacation, sick leave and PTO policies:
- The research suggests most employers are not changing their PTO/vacation plans unless mandated by law. Instead, they are encouraging employees to take their vacation or PTO. Additionally, many employees will lose that time if it’s not used;
- To boost flexibility, 42% have made or plan to make changes to vacation/sick leave/PTO programme;
- More than half of employers making changes are taking actions to address the anticipated surplus of vacation/PTO hours at year-end;
- Many employers are increasing flexibility in programme design by allowing negative balances and increasing accruals.
Managing excess time off
Employers need to be mindful that employees may hoard their vacation or PTO or delay scheduling elective procedures, which can result in productivity challenges at year-end. Employers need to factor in the potential impact on the balance sheet to account for carried-over or deferred vacation or PTO.
It is clearly understandable, based on the first half of this year, why employees may opt to defer. However, evaluating actual year-over-year usage near the end of the summer is critical to understanding perception versus reality.
Employers faced with employees building large banks of vacation or PTO have several options such as allowing for additional cash out, carryover or accruals; others are considering donation banks, buy-sell programmes, 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 carry over negative vacation/PTO balances and dip into future accruals.
Many employees are currently frustrated and do not want to have to take what in their minds is “pretend time off” or “staycations” owing to current health concerns, travel restrictions and risks. Employees feel they have earned their vacation or PTO and believe they should choose how and when to use it.
Taking all of this into consideration, the following are some crucial steps for employers to consider:
- Know your employee 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 their structure or provision. Consider how current accruals, carry-over time and benefit continuation will align; and integrate with your PTO, vacation, sick, holiday, parental, short-term disability or other company leaves. Keep in mind that changing policies will drive employee behaviour.
- 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 compliance issues: evaluate the complex maze of leave laws that are relevant to your leave policies and map these to your geographic footprint. Identify the provisions, including whether the leave is paid or unpaid, provides job protection or runs concurrently with other leaves as well as its 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, such as documenting a sick day and reflecting it on a payslip.
- 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 programmes 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 policy, will have an effective date, and someone will miss the eligibility window and feel neglected.
- Notify your vendor(s): communicate any anticipated changes to vendor partners you expect to have a role in the process and determine their internal timing requirements for system updates and training, as well as determining any impact on rates.
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. The clock is ticking; the time to plan is now.
What is the World Economic Forum doing to manage emerging risks from COVID-19?
The first global pandemic in more than 100 years, COVID-19 has spread throughout the world at an unprecedented speed. At the time of writing, 4.5 million cases have been confirmed and more than 300,000 people have died due to the virus.
As countries seek to recover, some of the more long-term economic, business, environmental, societal and technological challenges and opportunities are just beginning to become visible.
To help all stakeholders – communities, governments, businesses and individuals understand the emerging risks and follow-on effects generated by the impact of the coronavirus pandemic, the World Economic Forum, in collaboration with Marsh and McLennan and Zurich Insurance Group, has launched its COVID-19 Risks Outlook: A Preliminary Mapping and its Implications - a companion for decision-makers, building on the Forum’s annual Global Risks Report.
Companies are invited to join the Forum’s work to help manage the identified emerging risks of COVID-19 across industries to shape a better future. Read the full COVID-19 Risks Outlook: A Preliminary Mapping and its Implications report here, and our impact story with further information.