PTO Benefits Analysis in a Merger
Argosy University

When two companies have merged, there is more to the deal than just the financial ramifications. Creating a workplace from now two sets of employees is a difficult task. Each company has their own set of policies, procedures, and benefit packages. Implementing a plan to transition the benefits and policies and communicating the details of the plans is imperative to the merger. Although these plans are costly to companies, benefit plans are employee friendly. Companies try to offer the best plans, which are very competitive in attracting and retaining a talented workforce (Society for Human Resource Management, 2008) The more transparency that can be communicated early in the stages of the merger the more successful the company will be in employee retention, loyalty, and buy-in to the merger.
One of the benefits that must be reviewed is each company’s paid time off/sick time/vacation time policies. Evaluation of the employee handbooks and policies is important for both due diligence and for developing a plan to integrate employees into the new workforce. Accrued vacation and employee paid time off are calculated differently between Company A and B. Information about employee pay rates and accrual basis are needed. Companies may have had different pay rates for the same job levels (Smith, 2012) so payroll/accounting will have to be reviewed. Also, evaluation of how each company views days off is important. Many companies who offer PTO programs continue to offer separate programs for holidays, bereavement, and jury duty.
There are pros and cons for using a PTO system vs. a traditional leave system. If the company wants to proceed with using a traditional system, one reason is that employees are often motivated to avoid sick and personal absence, to accrue vacation time if using PTO. When the PTO systems are used, companies often see an increase in accrual overhang. While most states consider vacation time as a “carry forward entitlement”, sick days are often “use it or lose it”. (Scheuermann & Luecke, 2008) This is often called presenteeism, in which employees come to work sick in order to save PTO time for vacation. To avoid this, the company needs a culture that encourages employees to stay home if they are unwell.
Can both vacation benefit systems be used after the merger?
Utilizing both systems could add to the problems of the merger, instead of alleviating issues. The goal should be to reduce labor costs while maximizing productivity. Maintaining two systems is costly and tedious for human resources/bookkeeping. Also, keeping both systems can result in less buy-in and perpetuate the “us versus them” mentality. (Cascio, 2012) The employees can feel discriminated and create a divided workforce. This can lead to reduced productivity and possible legal issues. Employees may see this as unfair and create negative merger publicity. There isn’t equality between the systems: accruals are different, when to utilize the days, and the pay rates associated with accrual levels are different for possible the same jobs. (Scheuermann & Luecke, 2008)
Recommendation
The company should implement a PTO system for the company to offer. This system is easier to manage and attractive to new employees. (Society for Human Resource Management, 2008) Offering PTO empowers employee to use the time of at his discretion allowing for more flexibility, which is in sharp contrast to employer dictated sick/vacation time benefits. In order to implement the system the company must provide clear guidelines prior to implementation of the plan. For example, before using PTO the employee must give notice, unless there are unforeseen circumstances as being sick or an emergency. If too many employees are off at the same time, such as extended summer vacations and holidays, the organization will have customer service, staffing, productivity and operating continuity issues. (Cascio, 2012). Unplanned absenteeism is costly to an employer so trying to coordinate a schedule is a desirable option. The company must also define an emergency so as not to give preferential treatment. Secondly, it should be clearly explained how many days an employee will accrue based on seniority, job level, and another factors the company uses to evaluate PTO. The plan should also include a detailed explanation of the ability to carry over unused days from year to year, and if not, will the days be paid out. If they are paid, what is the formula, i.e. will PTO be calculated as full cash value or a different percentage. Finally, the program should be explicit as to whether employees leaving the company will be paid out for any used PTO days or if they will be forfeited.
Company A has been acquired by Company B. If company B wants to utilize the traditional system, certain factors will need to be considered. The employees who have not been terminated are now under employment of Company B. Most states, including California where Company B is located and likely where the contract was signed, require that an employer pay the employee all wages paid at the time of termination, which includes any vacation days accrued. Since Company A was sold to B, the sale technically results in the employees terminating employment and being hired by Company B. The terminated employees should be paid for the accrued PTO benefits at the time of sale, and begin accruing time on a pro-rata basis, depending on when the company was purchased. Also, since departments are being blended, any vacation schedules should be awarded on a basis of seniority, determined by time employed at either company, and limited to how many employees can be out on any one day. All immediate vacations for the first three months after the merger should be approved. Special consideration should be given if money has been spent for vacation, e.g. hotels, airfare and proof can be shown.
References
Cascio, W. (2012). Managing Human Resources, 9th Edition. [VitalSource Bookshelf version]. Retrieved from http://digitalbookshelf.argosy.edu/books

Scheuermann, M. J., & Luecke, R. W. (2008). Should you implement a paid time-off plan?, Journal of Compensation and Benefits, 13(6), 28-32.

Society for Human Resource Management. (2008). Examining Paid Leave in the Workplace. Alexandria.

Journal of Compensation & Benefits. May/Jun98, Vol. 13 Issue 6, p28 Scheuermann, Martine J.
Luecke, Randall W.