Challenge 

When two faith-based systems merged in 2017, the newly combined system faced a challenge common to organizations following a merger: how to integrate the organizations’ paid time off (PTO) policies in a way that would be equitable and cost efficient.

The new system, a large provider in the mid-South, sought to develop a common PTO policy that would compensate employees fairly while creating a structure that would best fit the new organization, both in terms of culture and cost. But gaining employee buy in for changes in PTO benefits is rarely easy. In this instance, the disparities in the PTO structures of the two founding organizations heightened PTO integration challenges:

• System A offered a three-tier PTO system, ranging from approximately seven hours of PTO biweekly for employees with nine years of service or less, to 10 hours of PTO biweekly for employees with 15 years of service or more.
• System B offered a six-tier PTO system, ranging from almost seven hours of PTO biweekly for employees with less than a year of service, to more than nine hours of PTO biweekly for employees with 20 years of service or more.

At a time when many employers are increasing their overall benefits including PTO, to meet employees’ desire for greater flexibility, the newly merged organization needed to carefully craft an integrated PTO policy that would meet the needs of the health system while protecting its ability to retain and attract talent.

Solution

Guidehouse examined the founding organizations’ original PTO policies and compared them with the paid days off policies of organizations that are similar in size and type. Based on this analysis, Guidehouse identified opportunities to achieve PTO synergies in four areas:

• PTO accrual rates: A new, five-tiered PTO structure, ranging from 22 days of PTO per year for new employees to 32 days of PTO per year for employees with 15 years or more of experience, would reduce PTO costs by $1 million. Additionally, the organization could reduce PTO costs by an additional $170,000 by eliminating part-time PTO, a benefit that had been offered by one of the health systems.
• PTO cash-out program changes: Reducing the PTO cash-out program from 100% to 50% could reduce costs by $237,000. 
• PTO payout at employment termination: Changing the current PTO policy to pay out only up to the annual cap upon termination would reduce costs by $22,000.
• PTO January payout above annual maximum: Eliminating January payouts of accruals above the annual caps, beginning Jan. 1, 2019, could save the organization $463,000.

Impact