Paid Time Off, commonly referred to as PTO, is a valuable employee benefit that helps workers avoid burnout, care for themselves and their families, and live their lives.
As a bonus, offering PTO can raise employee engagement and positively affect retention. It’s also a great way to attract talent. A robust PTO offering makes your company more desirable as a prospective employer.
Offering PTO also means managing it with a manual process or software tool. This can be a dedicated time and attendance system or a function of a more extensive HR software, such as an HRIS. Either way, it is critical for a company and its Human Resources (HR) Department to have clear PTO policies and well-developed tracking programs to ensure that PTO is administered correctly and fairly.
This article covers the core types of PTO employers can offer as a benefit of employment. We’ll also look at best practices for managing time off and writing good PTO policies.
How PTO Works
PTO refers to time an employee is paid for while they are not actively working. The benefit of this is that employees may take time (days or hours) away from their jobs to take care of their health, attend to personal matters, or relax without sacrificing income.
A company can provide PTO voluntarily, through negotiation with the employee or union, or as a legally required mandate. PTO requirements vary from state to state within the United States, so the relevant laws depend on the worksite location.
Different countries may also have requirements on PTO baked into their employment laws — which is critical to keep in mind if you’re building an international team. If you’re using an employer of record service, you should automatically comply with laws in various locations.
You can offer PTO over and above what is mandated by law. The general rule is to have a set limit of days or hours of PTO specified in a contract of employment, assigned to various PTO “buckets.” A company may, for example, offer Vacation Time and Sick Leave and keep track of these days separately using a process where employees request permission to take it.
You can also opt to have an unlimited PTO policy. Both strategies have their pros and cons. For example, if an employee gets a set number of vacation days per year, it is part of their compensation. They can, therefore, get paid out for accrued PTO if they decide to leave the company. Unlimited PTO doesn’t have a monetary value to time off, so there is no payout.
PTO is the most straightforward benefit for prospective employees to understand. It is also a significant consideration for prospective employees who are comparing job offers. Competing in the talent market will be more challenging if your benefits package doesn’t include PTO.
To ensure your recruitment efforts bear fruit and that the employee experience you offer drives retention, consider offering the following types of PTO.
Common Types of PTO
The most common type of legally mandated PTO is Sick Leave or Sick Days.
Sick Leave is earmarked either for illness or for scheduled doctor appointments. Sick Leave is critical to maintaining an effective workforce — a healthy employee is productive.
Sick employees who come to work, also known as presenteeism, are detrimental to your overall productivity. If their condition is contagious, they may also cause other employees or customers to become sick, further reducing productivity and sales. When employees have access to sick leave, they are more likely to stay home and get well.
Sick Leave can impact attendance policy violations. HR should ensure employees are well informed on policies that outline how using Sick Leave may or may not affect them. For example, companies may require proof of illness or doctor appointments for employees to use their Sick Leave. Sometimes, this requirement only kicks in after a certain number of days. It is also common for Sick Leave policies to require proof of taking a Monday or Friday off.
The required amount of Sick Time made available to employees over a period by law varies widely by state. In addition, there may be a requirement to offer family leave, which allows the employee to care for a sick or injured family member.
Many companies offer more than the legal minimum. This can be due to an employee retention or engagement strategy. You can also provide more Sick Leave because it’s easier and more cost-effective than tracking legal minimums in multiple locations.
Vacation Days, sometimes called Annual Leave, is another common form of PTO.
Vacation Days are intended for pre-approved time off (managed by time-off requests). This is important for employees to get away from work and relax to avoid burnout.
It is also a priority for employees who value family time highly. Access to paid vacation time allows them to attend important events and spend quality time with loved ones. Some companies may allow the usage of Vacation Time instead of Sick Leave if the employee has exhausted their Sick Leave. However, companies typically wouldn’t allow for the use of Sick Leave as Vacation Time.
The number of holidays that trigger PTO varies widely by country or state and can include all or some of the Federal holidays as well as many other holidays. To accommodate various religious and cultural holidays, you can offer floating holidays where the employees can choose the celebrations they get paid leave for.
Holidays like Christmas Day and New Year’s Day can trigger PTO work for all employees. This is presuming the organization can close its doors. Hospitals and other services that must be open at all times can deal with holidays in a number of ways.
Some will just add the Holiday hours to the employee's paycheck. Some employers will pay overtime or double-time to employees on top of the eight hours of Holiday pay. Other employers will allow the employee to take another day within a prescribed period. An alternative is to add the day to the employee’s PTO bank so that they may use it much later.
Some employers give no extras to employees working on holidays (above the paid holiday time in conjunction with regular pay). Some employers will only pay for eight hours despite requiring longer scheduled shifts over the holiday, resulting in less income per hour for those employees.
Both employees and HR need to understand their holiday policy and how it will impact employees wanting or not wanting to work on holidays when the business remains open.
Special Types of Paid Time Off
Personal Days are a form of Vacation Time typically given as a block of time annually.
Personal Days are typically used in whole or sometimes half days, not by the hour. Personal Days usually have fewer restrictions than regular Vacation Time and can be used with less notice. For example, if an employee has a family or personal emergency that isn’t health-related, they can take personal time to deal with it.
It is common for employees to receive both regular Vacation Time and Personal Days. When both are received, the Vacation Time is often accrued over time, and the Personal Days are given as a block. In other words, personal days may not roll over at the end of the year.
Some companies will give PTO to an employee who has given birth or had a child with a partner.
Paternal leave can be short, such as one to three days. It can also be an extended Maternity or Parental Leave of a few weeks up to several months. Parental leave can be paid time off at either full pay or less.
Companies often pair with an insurance carrier to cover the employee’s total pay, with the company paying some of the leave and the insurance company covering the rest.
While Parental Leave is covered under the Family Medical Leave Act (FMLA), the law does not require any payment of wages. Unpaid parental leave simply means that the company will keep the employee’s job to return to after the leave period ends.
Companies may also allow Parental Leave for adoptions or the placement of foster children. As with the birth of a child, these are categories protected under FMLA but do not require pay.
Compensatory Time or Comp Time is PTO given to an employee in place of overtime.
This is usually vacation time given to an employee at the overtime rate (1.5 hours) and used in a different period. In other words, the employee gets a higher number of hours added to their accrued time than the overtime they’ve worked.
Compensatory Time differs from adjusted time, which is accrued at a 1:1 hours worked/received rate and typically used within the same week or period. Compensatory time is rare and can be illegal in certain circumstances, especially in private, non-governmental businesses.
Bereavement Leave, or Funeral Leave is a form of Compassionate Leave that has become a common benefit to employees.
Companies have rules regarding how much can be used based on the employee’s relationship to the deceased, the travel distance to the funeral, or other factors. For example, the loss of an immediate family member may trigger more PTO than the loss of a distant relative.
The company may require the employee to provide proof of the death and their relationship to the deceased. This form of evidence may vary widely among employers. The typical Bereavement Leave is one to three days, but it can be more.
Some employers require the Bereavement Leave to be consecutive days, while others allow non-consecutive days. Many times, employees will use additional Vacation Time to extend this benefit. It is also not uncommon for an employee to use unpaid time off in conjunction with Bereavement Leave.
In addition to losing a close friend or family member, it has become more common for companies to offer bereavement leave when an employee or their partner has lost a pregnancy due to a miscarriage or stillbirth.
Jury Duty is a type of PTO that allows U.S. employees to sit through the jury selection process and the trial should they be selected.
While Jury Duty is mandatory when the employee is selected, and their job is protected by Federal law, there are no Federal requirements for pay. However, states have different rules for jury duty pay.
Some companies will pay an employee their full wages during this time. It is also common for a company to only pay the difference between the employee’s wages and the amount the employee is paid for jury duty. Typically, an employer will ask for confirmation that the employee was required to attend the screening or selected for the trial, as well as any payments for their service.
Volunteer Days are a less common type of PTO that allows employees to give their time to a good cause without forgoing their personal time or income.
Paid Volunteer Days may apply for individual use, as a team, or a combination. When used as a team, the company typically organizes a volunteer effort for the
employees to build teamwork and morale.
Floating Holidays or Religious Leave is a type of leave that lets an employee observe their religious festivals that are not covered by a holiday.
The company may require the employee to specify the days they wish to celebrate at the time of employment.
Sabbaticals are extended paid leaves most commonly associated with higher education.
Sabbaticals allow employees to focus on themselves, learn new skills, avoid burnout, or have new experiences. Employees often use these periods to fulfill personal goals, such as writing a book or traveling. Typically, sabbaticals are granted on a seven-year cycle and can be a few months to a year long.
Other Types of Leave
In addition to the types of PTO we’ve covered, companies can offer paid leave in other circumstances.
Mental health days are gaining popularity, for example. Companies may offer study leave to support employees who are working on a degree. Recently, companies have also started offering leave to support employees with fertility treatment, gender affirmation, and other processes that require time away from work.
Outside of PTO mandated by local laws, companies are free to tailor their PTO policies according to the market, their workforce needs, and what they find attracts a desired caliber of talent.
PTO Management and Policies
There are many types of PTO policies. Determining what type works for your company will affect your team’s employee experience, engagement, and retention.
It is critical to have unambiguous paid time off policies that are easy to understand. This helps the employee to use it effectively and makes the administration and tracking of PTO easier for you and your HR team.
It is also vital for the PTO policy to reflect the company's values. If the company values work-life balance but has a very limited PTO that is difficult to access, employees will see the company’s values as nothing more than platitudes.
Unlimited PTO is when a company allows employees to use as much leave as they choose with no limits, pending approval.
An unlimited PTO policy allows an employee to use time when needed without worrying about limitations on days of PTO and balances. It also simplifies PTO management for HR because days off don’t have to be assigned to individual buckets. Offering unlimited vacation also means the company doesn’t have to keep track of an employee's PTO payout amount. If they leave, there will be no unused PTO at separation.
However, employees with unlimited PTO often use less PTO than employees with a traditional PTO policy. Due to this, companies are working on ways to encourage more PTO usage when they have an unlimited PTO policy to avoid burnout when employees don’t take a break.
Banked or Flexible PTO is when an employee receives one bucket of PTO that encompasses all of their needs, including sick leave, vacation, personal time, etc.
Offering flexible PTO plans makes tracking much more manageable, and the employee doesn’t need to worry about whether they have enough of a particular PTO type — just that they have enough leave overall.
Because Flexible PTO is so easy to manage, it is an excellent strategy for small businesses that don’t have the capacity to run a more complicated policy.
If you decide to use this catch-all approach to PTO, you may still have preset requirements for granting an employee time off. For example, unscheduled time off may require proof of a health issue or emergency.
Crafting Your PTO Policy
When crafting a PTO policy, you want to start by deciding on:
- The types of PTO to include,
- The number of days (accounting for seniority)
- Whether there is a set rate of accrual or a set number of days per year
- The process for requesting PTO
- The proof necessary to claim unplanned PTO
- What types of PTO can or can’t rollover, and
- Cap limits
Your policy must also answer the following questions:
- What are the differences in your PTO policies for full-time and part-time employees?
- Is there a payout for unused PTO? How much is the payout, and how will this work? Ensure you are familiar with your state’s laws, as some states have requirements about payout of PTO.
- Who in your company is responsible for tracking PTO?
- How far in advance must each type of PTO you offer be requested?
- Who needs to approve a PTO request?
- What are the parameters for approving a PTO request? For example, is there a limit to how many employees within a department may take leave simultaneously? If there is a conflict, what is the protocol for accepting one request and rejecting another?
Keeping Tabs on PTO
All PTO must be tracked accurately so that the employee knows exactly how much of each type of PTO they have accrued and how much they have remaining.
It makes management's job easier if they know how much PTO each employee has available. Accounting will also benefit from having accurate PTO balances for proper budgeting.
There are many ways to track PTO usage and availability. The easiest is within your HRIS system. A spreadsheet will do in lieu of an HR software with this functionality. However, it will leave more room for outdated information and human error.
Something to think about when setting up your PTO policy is the minimum amount of time that can be taken for each type of PTO.
The minimum can be exact minutes to quarter hours to 2 or 4 hours. For example, a doctor’s appointment may only take an employee away from work for an hour or two. The smaller the minimum, the higher difficulty you’ll have in tracking. As a result, many companies only start granting PTO for half-days or full-days off.
Another parameter to consider is the time of activation. When do you want your new employees to have access to their PTO? Some positions will start with a set number of hours; some accrue immediately, while others have to be on the job for a month to 90 days before they can begin to accrue or have access to any PTO.
You can also write parameters regarding PTO during a resignation period into your policy. For example, the policy may prohibit an employee from using PTO in their notice period to preserve time for knowledge transfer. On the other hand, you may want them to take as much accrued PTO as possible before leaving to minimize a payout.
Some Final Thoughts on PTO
Offering various types of PTO to employees demonstrates that you value their personal lives and physical and mental well-being.
Even if the company just offers one bucket of PTO, ensuring that it is enough to cover all of the reasons PTO may be taken is essential. Whether you offer various types of PTO or one big bucket that employees can access without hassle, the time away from work without financial implications will make employees feel valued. This makes them less likely to leave due to dissatisfaction with the company.
PTO is a vital employee benefit, often discussed and negotiated before an employee accepts the position. If you offer an attractive PTO package, you’ve already claimed your stake in the race for top talent.