What is Paid Time Off (PTO)?

What is Paid Time Off (PTO)?

Paid time off, more commonly called PTO, is any personal time employees take off while still being paid their typical wages by the company. This time off can often be used as the employee sees fit, though some policies are structured a bit differently and separate certain types of PTO, such as sick days, holidays, or vacation days. Some companies even offer unlimited PTO, which we’ll get into soon.

The primary purpose of PTO is to provide time that employees take off of work while still being compensated so that they can enjoy breaks without losing money. Again, paid time off isn’t legally required, but most companies offer PTO as a part of their employee benefits package. “Paid time off” is also often used interchangeably with the term “personal time off,” so some workplaces may use one or the other, but they mean the same thing.

How Does PTO Work?

PTO policies are usually offered as a pool of paid days that employees have access to for a variety of reasons, though how those days are used may be more controlled depending on the company regulations. Generally speaking, there are two types of paid time off policies a company uses: traditional or unlimited policies.

Traditional policies will likely group different types of PTO into these categories:

• National and floating holidays
• Paid vacation days
• Paid family leave
• Paid sick leave

We’ve got a more extensive list down below (see Types of Paid Time Off), but you get the idea. You may have a specific number of sick days and then an allotted number of days to use at your discretion. Often, employees are allotted a set number of days per year that will either expire if they aren’t used or roll over into the next year.

Other paid time off policies allow you to accrue time instead of setting a specific amount of days. For example, an employee may earn one hour of PTO for every 20 hours worked. An employee under this model can let that PTO build and eventually take time off as approved.

Then there are the unlimited PTO policies, which are pretty much exactly what they sound like: as long as your hours are approved and your work gets done, some companies allow employees to simply take the time off that they need. This is the ultimate flexibility that employees could ever want, and only 9% of employees are offered unlimited PTO. 

A word of caution: Sometimes, when companies don’t have clear guidelines or don’t actively encourage employees to use their PTO, unlimited PTO can really just result in employees feeling obligated to always work because they technically have the time to work. HR and management can prevent employees from overworking themselves by reassuring employees when they take time off, offering extra support during PTO, and encouraging employees to fully unplug when away from work.

Your PTO policy can allow employees either a set amount of time off that they will be paid for, or simply let employees take leave when needed. It all depends on the needs of your company and what the policy outlines.

Types of Paid Time Off

There are a lot of different kinds of paid time off and some companies get pretty specific with those categories. The following types of leave are all slightly different and may or may not fit into your policy.

• Sick leave
• Vacation leave
• Personal leave
• Optional leave
• Military leave
• Parental leave
• Earned leave
• Sabbatical leave
• Study leave
• Bereavement leave
• Jury leave
• Leave to vote
• Volunteer leave
• Compensatory leave
• Duvet day

Benefits of PTO to an Employer

So, if PTO isn’t necessarily required, why would you as an employer or HR manager endorse a PTO policy for your workplace? There are a lot of advantages for employees and employers alike.

• Decrease employee burnout. Running endlessly at 100% is going to wear people out. Before you know it, you’ve got a crew of amazing people who just cannot perform the same because they are burned out. Having PTO gives employees the freedom to take a break and recharge so that they can actually engage at work and take care of themselves. Sometimes, people need a mental health day or need to recover from a cold. Other times, people need a day to run errands or go to appointments. Whatever their reason, people need time off without losing money if you want them to thrive during work.
• Increase productivity. Engaged employees are far more productive and do better work, and they will only be engaged long-term when they can take breaks and control their own lives. The more autonomy that employees have over their life, especially their personal time, the more time and effort they can healthily dedicate to their work life!
• Diversity. This one may surprise you, but did you know that PTO is a great way to create an inclusive workplace? Not everyone celebrates the same holidays or has the same type of lifestyle. Some extra paid time off allows employees to take the time they need to for their cultures, families and anything else they value.
• Positive workplace relationships. When supervisors support an employee’s use of their paid time off, they cultivate trust and respect, which leads to greater loyalty. There’s no reason for employees to misuse their time or company time when they have sufficient PTO.
• Improves organizational culture. When it comes to creating a great organizational culture, the values of the company should be reflected in the benefits and policies offered to employees. So, if companies say they value employee health, they should offer the flexibility and support that PTO provides so people can take care of themselves.
• Higher talent retention. The best of the best in your organization’s field won’t go with just any company, and as your current employees grow and improve, they will want benefits that truly serve them in their lives, too. If you want to attract and retain top talent, offer PTO before your competitor does!

Commonly Asked Questions About PTO

Do I have to offer PTO?

The short answer is no, you don’t have to offer PTO according to federal or state laws. The more realistic answer, however, is yes, you do need to offer paid time off if you want to keep up with competitors who do offer PTO, take care of employees, and catch the interest of top talent in your industry.

Are PTO blackout periods legal?

PTO isn’t regulated by federal laws. Because paid time is an optional benefit, employers can block off certain periods where no PTO requests will be approved as long as those periods don’t conflict with state or local laws or unique employee contracts.

Do I have to pay out PTO when an employee leaves?

If you offer PTO and someone leaves your company, your state may require you to payout that employee at separation. It may depend on the type of PTO you’re talking about; for example, vacation time is often required by the state to payout at the end of their employment. That said, some states leave it completely up to the employer’s discretion. The HR department should check state laws often (since laws can change, too) and then make sure your employees understand their policies.

Should organizations audit their PTO policies?

Yes, you should conduct audits to ensure that your company and the HR department are compliant with PTO laws. Audits also let you identify any potential issues, and tweak your policies to address them. What if, for example, an employee decided to save up their PTO days and use it all at once at the end of the year? The company could suddenly be out an entire month’s worth of productivity and profit. An audit helps prevent these kinds of scenarios by taking into account the company’s financial health and limitations.

Can personal time off be denied?

Yes, employers or HR reps can approve or deny PTO such as accrued vacation time. You should, however, document when and why those requests are denied and ensure they are being turned down for a legitimate business reason. Denying paid time off should always be done using a consistent and nondiscriminatory system.

What is the average paid time off (U.S.)?

The average PTO in the U.S. is 10 days, at least in the private sector. This does not include paid holidays or sick days. This varies by industry, policy type, and of course, individual companies.

How Can You Add To Your Benefits Package?

A generous paid time off policy is one way you can support your employees, especially regarding their health. When employees can use their PTO at their own discretion, they don’t have to stress about being sick or needing to care of personal matters, which serves their physical, emotional, and mental health. 

Our advice? Don’t opt out of this one! People need and deserve time off without worrying about a paycheck dip. Plus, the environment and culture you create by offering PTO will make the initial cost worth it in the end.

Aside from PTO, another benefit you can include in your benefits plan is a wellness program. These programs, similar to PTO, protect all aspects of an employee’s health when well-designed. Speak with a wellbeing specialist to find out more about the resources you can use to provide a wellness program for your employees!