The COVID-19 pandemic heightened employers’ obligations to paid leave, making mandatory paid sick leave a rapidly developing focus area for workers, applicants, and HR.
However, employers operating across multiple geographic locations – a large increase due to remote work – can be vulnerable to compliance risk and administrative complexity when navigating state and local paid leave laws.
To mitigate risk, employers must streamline their current paid leave programs to ensure full compliance today and to protect against undue risk in the future.
Where to Begin
If an employer needs to update their current leave program to achieve paid sick leave, there are numerous inputs to consider when designing a multi-jurisdiction paid leave program, including:
- Understanding employee value drivers for recruitment and retention.
- Focusing on ease of administration for HR, Finance, and Management.
- Designing the leave program and associated policies to promote ease of application and understanding.
- Researching and documenting state and local regulations in jurisdictions where your company operates.
- Seeking guidance from legal counsel.
- Conducting market research for current industry competitors and national trend data.
- Exploring existing HRIS and ERP system capabilities and any updated configuration needed to administer the new program.
- Analyzing program cost/financial liability.
The Society for Human Resources Management provides additional insight into designing a plan that meets both the employer’s and employee’s needs, which can also help inform any resulting policy changes.
Paid Leave Plan Structure Considerations
There are generally three types of paid leave plans that grant employees paid time off:
- Separate “buckets” of vacation leave, sick leave, and holidays (and sometimes personal or float days).
- A PTO plan that aggregates some of all of the paid leave types above into a single plan where types of paid leave are not typically designated.
- Unlimited or Discretionary PTO, which is a relatively new concept that works well for particular kinds of employers, such as those with a high population of exempt employees and that offer greater flexibility with work arrangements and those with a company culture that allows for employees to take a reasonable amount of time off.
Given that there are several different ways to structure a paid leave plan, consider what is best for your organization’s business and employee population(s) when deciding which type of plan to implement.
Questions to Ask Before Making a Decision
To narrow down a direction, ask:
- Which state and local paid leave regulations is my company subject to? What type of plan structure, tenure levels, and accrual awards would meet the requirements?
- Does my employee population vary? If so, do different populations (such as exempt vs. nonexempt, front line vs. corporate) value different types of paid leave, or are other benefits more important? How does employee time off impact the business?
- Can I conduct an employee survey with targeted questions to uncover these potential value drivers? Can I hold employee roundtables or inquire with an employee advisory board?
- What is the capacity of the team(s) administering paid leave programs? Can manual work and tracking be significantly reduced or eliminated?
- What are the current HRIS and ERP systems’ core functionalities and how does the potential new program work with existing systems? Can any elements (such as accrual calculations, eligibility start dates, and payouts) be automated?
In addition to those questions and other key factors, employers should ensure they bring in functional representatives from Finance and Legal to participate in the conversation and evaluation of the recommended new program.
Case in Point: A National Client Meets and Exceeds Jurisdictional Paid Leave Requirements
For a national client with branches across the country, we recently conducted research and analysis to develop a holistic leave plan that will be both compliant and competitive.
The client had acquired a competitor to expand their geographic footprint and needed support consolidating and streamlining their two separate paid leave plans into one program. They also sought to tailor their plan to different employee populations with different value drivers. With their primary focus on their foundational employee base of hourly frontline staff, they also wanted to bring value to corporate employees and senior leadership.
Our detailed analysis showed that half of the jurisdictions where the client operates have complex leave plan requirements, confirming the need to incorporate as many regulations as possible into the overarching plan to simplify administration.
Additionally, market research showed that the traditional structure of separating leave (sick and vacation), while trending down slightly over the last decade, still accounts for more than half of leave plans offered (with PTO plans about 10% less common, and Unlimited PTO plans accounting for just 4% of plans).
Analysis of all these factors and more led to a recommended plan design that included:
- One streamlined plan with separate paid time off for Vacation, Sick, and Holiday (representing a transition away from PTO for one of the organizations).
- Three separate tiers of employee populations separated by function and level, with varied paid leave accrual amounts based on tenure.
- For all employees regardless of tier, included richer sick time accruals than previously offered, meeting or exceeding the regulatory requirements.
- For all employees regardless of tier, designed vacation leave to accommodate state-mandated “use it or lose it” and payout cap restrictions, eliminating annual rollover caps in favor of vacation balance caps with a 1.5 multiplier.
The resulting plan design aims to drive recruitment and retention while streamlining plan administration, communication, and application. It also meets or exceeds jurisdictional paid sick leave requirements, with very few exceptions to manage.
Putting It All Together
As employers build a multi-state leave plan, it’s clear there are numerous factors to analyze to determine which program is best for the business overall.
Companies should conduct a thorough assessment of the regulatory requirements, market competitors, and best practice offerings, as well as their internal environments such as employee value drivers, organizational structure, and budget.
Companies embarking on this process should deploy sufficient project management support due to the highly cross-functional nature of impacted stakeholders, a critical area of expertise for our Human Capital Transformation specialists.
For expert support in assessing your current-state leave program and streamlining it for multi-state compliance, contact CrossCountry Consulting.