Would you consider a benefits program with the potential to boost employee vacation benefits without costing the organization an extra dime?

Then you may want to see if paid time off/vacation banking or PTO pooling is right for your organization.

In a nutshell, PTO banking is a system of employees helping fellow employees by donating their unused PTO days. The main difference between banks and pools is that the former is an ongoing program where employees “deposit” days off every year for any co-worker to use.

Pools are set up for donations to a particular person in need, and employees donate days as necessary. Example: If an employee is diagnosed with cancer or another serious illness, fellow employees can donate PTO days to the co-worker so the person continues to receive a paycheck.

The advantages: Organizations that offer such programs routinely report jumps in employee morale and reduced short-term disability costs.

Offering leave banks and/or pools can enable the whole organization to retain valuable employees or let employees participate in a colleague’s recovery from illness.

Also, since employees typically accumulate PTO through their time of service – with a ceiling on the amount of PTO they can earn – donors soon replenish the days they’ve given up.

Money already budgeted

From an employer standpoint, these programs can help establish a caring, supportive work environment – the No. 1 factor in strong employee morale. Best of all, it’s a no-cost program, because the PTO days that get banked or pooled are already “in circulation.”

In other words, the money to pay the PTO recipients has already been budgeted, as has the cost of covering their absences. Another plus: It’s a way to help employees with a legit need for FMLA, but who can’t afford to take unpaid time off.

The main challenge in setting up these programs: creating a record-keeping system for employees’ deposits to and withdrawals from the bank. Most firms track it via the same system they use for regular PTO.

Who’s using it?

PTO banking and pooling programs have taken off faster in small to mid-size organizations than in large firms. A recent EBRI estimate finds 72% of organizations with PTO sharing programs have 250 or fewer full-time employees.

The use of the programs isn’t limited to employers with PTO. Firms with separate vacation and sick time policies also have such programs. But it’s less common (by nearly a three-to-one ratio) due to the increased administrative burden of tracking different types of donations and withdrawals.

Some organizations with separate sick time and vacation policies get around the hassle by restricting donations to one type of leave (more commonly sick-time donations).

Can complicate buy-back programs

Be careful about starting banking or pooling programs if you also offer a buy-back program for unused PTO, sick time or vacation days. Donors may still be entitled to full compensation for the donated days as well as unused time.

Reason: You can’t hold the employee’s good deed against him or her. The donated day(s) should be re-credited for buy-back purposes. Also keep in mind that buy-backs must be prorated according to total compensation, including any bonuses, overtime, profit shares or other types of non-base compensation.

There has yet to be a major court challenge over buy-backs of donated days. But legal experts warn it’s better to be safe than sorry with your policy.