Construction payroll, especially certified payroll, can be complicated but it’s not the only problematic administrative task. In the construction industry even PTO accrual is more challenging because at any given jobsite there could be full time workers, trade and union workers, and seasonal workers. Each of these classifications could have different requirements and accumulate paid time off differently.
Handling PTO in the construction industry can be challenging, so exactly how can you manage it for your workforce? Let’s look at some of the options out there for dealing with paid time off.
Before we talk about different methods of dealing with PTO, we want to talk about the legal requirements around PTO. At the federal level, there are no laws that require a company to offer paid time off. Here is what the Fair Labor Standards Act (FLSA) has to say about it:
“The Fair Labor Standards Act (FLSA) does not require payment for time not worked, such as vacations, sick leave or holidays (Federal or otherwise). These benefits are a matter of agreement between an employer and an employee (or the employee’s representative).)
Most states also have no laws mandating that a company offer paid time off but may have laws around the way it’s handled if you offer it. This means that if you have a paid time off policy in place, you are required to honor the terms within it. So, why do companies offer PTO if it is not required?
PTO is a perk offered to workers for choosing to work for you instead of another company. It can help you attract and retain high-quality workers, which reduces the cost of turn over and continual recruiting. It also shows you value your workers and their need for work-life balance, which is increasingly important.
In this method you provide employees a set amount of time to use as paid time off. These could be given at the start of the year, the start of your fiscal year or on the employee’s anniversary date. Oftentimes new hires receive a prorated amount of paid time off based on their start date and employees get more time each year as their tenure grows.
You can offer this time in the form of days or by the hour, which can be harder to track but offers employees more flexibility. Overall, the PTO allotment method is fairly easy to track and manage, even if you have different classifications of workers. In this situation you simply give different amounts of PTO to workers based on their classifications. For example, you may give seasonal workers and part-time workers a different amount of PTO than full-time workers.
There are a few things to consider with allotted PTO, such as what happens to unused paid time off at the end of the year; does it roll over or is it lost? The answer isn’t clear cut and state laws may govern this, or not address it at all. For example, in California employers are prohibited from having “use it or lose it” policies on paid time off, but are allowed to set a “practical accrual cap.” In Indiana companies can have a “use it or lose it” policy, while in other states there are no specific regulations about PTO.
Some states also require companies to pay out unused PTO to employees if an employee leaves:
- District of Columbia
- New Hampshire
- New York
- North Carolina
- North Dakota
- Rhode Island (after 1 year)
- West Virginia
Unfortunately, this requirement is not as clear cut as it may seem. Some states have provisions that allow companies to withhold pay for unused PTO time. This may be allowed if an employee was terminated or if they haven’t worked for a certain length of time. Since state laws vary and are subject to change, it’s important to understand the laws in your state. You can check with your local Department of Labor to make sure your policies align with the law. You can find contact information for every DOL by state here.
Accrued PTO builds up over time and is often in line with pay cycles and tenure. In this method, workers receive a pre-determined amount of PTO every pay period. This method uses an accrual cap, which is the maximum number of hours a worker can accrue each year. This number is used to determine how much time workers accrue each pay period. Using accrued PTO is simple for salaried workers, but more challenging for hourly workers since the calculation depends on hours worked, which can vary. An alternative method is to set up accrual benchmarks such as adding PTO at the end of each week, quarter or year.
The accrual method is a very common way to deal with paid time off. This method can save your company money since you only have to pay for time already accrued when workers leave. While it doesn’t seem complicated, it requires more work to track and manage than allotted PTO. Hourly workers may have variable hours and if you have seasonal work, some workers may have an employment gap that impacts PTO.
Paid time off requirements may also be different within various localities you operate within. Having accurate and effective time and attendance software is especially critical for handling accrued PTO.
Have you seen more companies offering “Unlimited PTO” lately? It has become a trendy way to deal with PTO and is really intended to help companies attract and retain workers. This job perk has become more common in recent years, especially within industries hard hit by labor shortages, like construction. It allows workers flexibility and demonstrates trust between employer and employee.
Unlimited PTO is simple to manage and there is no vacation pay out required when workers leave. The policy can be problematic though, especially for construction companies because they deal with strict deadlines. There can be serious financial risk if absences delay the progress of projects. It can also cause missed deadlines and damaged reputations, both of which have serious consequences as well.
How to select the best PTO option for your business
The PTO method you select should take into account a number of operational factors within your business. You’ll need to consider how you handle pay cycles, how many employees you have, how you track time and the type of workers in your workforce. For example, if you have hourly workers and a small admin team that handles payroll manually, an allotted PTO may be the easiest to manage.
Last but not least, take a look at how you track time and your payroll software or service’s capabilities. Ideally, it needs to make handling PTO simple, from easily managing tiers of workers at different accrual rates to automating the request and approval process.
The material presented here is educational in nature and is not intended to be, nor should be relied upon, as legal or financial advice. Please consult with an attorney or financial professional for advice.