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What is PTO?
Short for paid time off, PTO refers to any time an employee is paid while away from work, whether it’s a vacation, sick time, or personal days. Employers generally consider paid time off part of a worker’s compensation package, along with overall salary, health insurance, retirement plans and other benefits relating to an employer’s value proposition.
Some companies have separate PTO policies outlining different types of leave, such as a certain number of vacation days and a separate bank of sick days. Others lump all paid leave together into a single PTO bank that employees can use for any reason, no questions asked. Employees typically either accrue PTO hours based on time worked (e.g. X hours per pay period) or are allotted a set number of PTO days each year.
PTO does not typically include other protected forms of leave such as disability leave, parental leave, military leave, jury duty, or time off mandated by state or local laws. Separate policies often cover these other leave types to ensure legal compliance.
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Types of PTO
Companies may choose to offer several different types of paid time off to employees, either in separate buckets or as part of a total PTO bank. Common types of PTO include:
- vacation time
- sick leave
- personal days
- holidays
- floating holidays
- bereavement leave
- volunteer time off
- unlimited PTO
The types of PTO offered and the amount of time allotted often depend on factors like industry standards, company size, location, and what’s required by state and local laws. For example, most companies offer full-time employees an average of 10 paid holidays per year, while others allow employees to choose which holidays they want to take off.
State and local laws may also influence sick leave policies. Some jurisdictions now mandate that employers provide a certain amount of paid sick leave, while others allow companies to set their own policies. It’s important to stay up-to-date on changing leave laws to make sure your PTO policy remains compliant.
Benefits of Offering PTO
A generous, well-crafted PTO policy provides significant benefits for both employees and employers. From the perspective of workers, having ample paid time off:
- supports better work-life balance
- reduces stress and prevents burnout
- gives time for rest, reflection, and rejuvenation
- allows employees to attend to personal/family needs
- makes them feel valued and appreciated
When employees have the flexibility and autonomy to take time away to rest, recharge, and attend to personal needs, they are happier, healthier, and more focused and motivated at work. This translates into lower turnover, higher performance, and a stronger bottom line.
For employers, the benefits of a robust PTO policy include:
- attracting top talent in a competitive job market
- boosting employee morale, loyalty, and engagement
- increasing retention and reducing turnover costs
- enhancing company reputation/employer brand
- lowering healthcare costs by promoting wellness
- ensuring compliance with leave laws
- reducing problems with presenteeism
- improving productivity and quality of work
All of these advantages translate into significant cost savings and a stronger bottom line.
How to Choose a PTO Policy for Your Business
To select the right PTO policy for your organization, start by:
- evaluating your budget and staffing requirements
- benchmarking PTO offerings in your industry and region
- considering applicable federal, state, and local leave laws
- getting input from employees on their time off needs and wants
- determining rules around accrual, carryover, and payouts
You’ll need to decide whether to offer separate banks for vacation, sick, and personal time, or a general PTO policy. An accrual-based policy where employees earn PTO hours each pay period reduces costs—while allotting PTO days upfront can reduce administrative work.
Factors to Consider When Creating a PTO Policy
In addition to deciding on the basic framework of your PTO offerings, there are several other factors you’ll want to think through as you write your policy.
Taking the time to think through these issues in advance will make your policy more comprehensive, consistent and legally sound. When in doubt, consult an employment law attorney or HR expert to make sure all your bases are covered.
Eligibility
Will all employees receive PTO or only full-time workers? Is there a waiting period before new hires can accrue or use PTO?
Accrual rate
How quickly will employees accrue PTO (by hours worked or length of service)? Will there be an annual cap?
Usage
What is the process for requesting time off? How far in advance must workers make requests? Can PTO be used in increments or only in full-day allotments?
Carryover
Will employees be able to roll over unused PTO from year to year? If so, is there a maximum amount they can bank?
Payouts
What happens to accrued PTO when an employee leaves the company? Will it be paid out or forfeited?
Scheduling
How will you ensure adequate coverage when employees are out? Are there blackout dates when PTO can’t be used?
Integration with Leave Laws
How will your PTO policy interact with legal mandates around family leave, sick leave, etc.? Are you clear on compliance requirements?
PTO Policy Best Practices
Once you’ve determined your basic PTO policy framework, keep these best practices in mind:
- Put your full policy in writing in the employee handbook.
- Explain how PTO is earned, used, rolled over, and paid out.
- Use clear, concise language free of jargon and legalese.
- Include rules for providing notice or requesting time off.
- Get sign-off from leadership and educate managers.
- Make sure employees know their PTO balance and feel encouraged to use it.
- Use software to accurately track accruals, requests, and allotments.
- Stay up-to-date on changing leave laws that may require policy updates.
A written policy promotes consistency, compliance, and utilization of the benefit. Managers should lead by example in taking PTO and supporting their team in taking time off when needed.
PTO Policy Examples
There are many different ways to structure a PTO policy, from traditional vacation/sick banks to a general PTO model to unlimited time off. Here are a few examples of what a typical PTO policy might include:
Traditional Leave Policy
- The employer provides 10 days of vacation (accrued at 6.67 hours/month).
- Workers receive 5 sick days (allotted upfront each year).
- Workers receive 3 personal days (allotted upfront each year).
- The employer provides 10 paid holidays.
- Vacation and personal days can roll over up to 1.5X annual allotment.
- The employer pays out unused vacation hours upon termination.
PTO Bank
- Employees with 1-3 years of service receive 18 days (144 hours) PTO.
- Workers with 3-10 years of service receive 24 days (192 hours) PTO.
- PTO accrues each pay period based on hours worked.
- PTO can be used for any reason (vacation, illness, appointments, etc.).
- Unused PTO rolls over up to 1.5X annual allotment.
- Employers pay out accrued unused PTO upon termination.
Unlimited PTO
- There is no set limit on the number of PTO days per year.
- Employees can use PTO for any reason at their discretion.
- Managers must approve all requests based on business needs.
- Employers encourage workers to take at least one week off per quarter and 2-3 weeks off per year.
- There are no rollovers or payouts since PTO doesn’t accrue.
- The organization offers 10 paid holidays and office closure between Christmas and New Year’s Day.
Keep in mind that policies will vary based on industry, workforce, location, and budget. The right policy for your business will depend on your unique needs, goals, and company culture.
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A well-designed PTO policy can improve retention while boosting morale, engagement, and productivity. This results in lower turnover, higher-quality work, and a healthier bottom line.
By carefully considering your staffing needs, industry benchmarks, legal requirements, and employee preferences, you can structure a program that promotes work-life balance and positions your company as an employer of choice in your industry.
Frequently Asked Questions
The amount and type of PTO varies widely by employer. According to the U.S. Bureau of Labor Statistics, the average number of paid vacation days for private industry workers after one year of service is 11 days. However, some companies are known to offer upwards of 20-30 days when all forms of PTO are combined. When in doubt, it’s better to be a bit more generous with PTO than risk losing great people to companies with better perks. You can always adjust your policy down the line if you find it’s unsustainable.
Employers can change their paid-time-off policies; however, some states have laws that may restrict what they can do. For example, an employer can’t take away vacation time employees have already earned under a previous policy. However, an employer could change how employees earn their vacation time. They could also alter policies about when they are allowed to take their vacation time and how much they can take at once.
You can offer more PTO to some employee groups (like executives) than others. But there are some risks to this approach. Since unequal PTO policies can breed resentment if not handled carefully, it’s best practice to have a consistent PTO policy that applies to all workers in a given job classification. You can tier your policy by tenure, but avoid discriminating based on protected characteristics like race, gender, age, etc.
It depends on your state. About half of U.S. states have laws requiring employers to pay out an employee’s unused accrued PTO balance upon termination. These states view PTO as an earned wage, rather than a benefit that can be forfeited. In these states, you can still impose a “reasonable” cap on PTO accruals and payouts to limit your financial liability. But you can’t have a “use it or lose it policy” where employees forfeit earned PTO at the end of the year. Check your state’s labor department for specific rules and guidance.
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