Paid Time Off (PTO)

Tanner Pierce, PHR
We all know that to be a happy and productive employee, some time off is necessary. After all, do we work to live, or live to work? Paid time off is a valuable benefit for both employer and employee—but how do you create a good policy and implement a PTO program? Read on to find out.

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What Is Paid Time Off (PTO)?

Paid time off is a benefit that involves paying an employee for the time they are not working. It is often provided by employers for employees to use as they see fit. PTO is typically measured in hours and can be characterized in a variety of ways: sickness, vacation, or personal time.

Advantages of Offering Paid Time Off

Offering PTO to employees shows that the employer truly cares about their well-being and, ultimately, the future of the business. Research shows that employees rate time off as the second most important benefit, (health insurance being the first). Here are some of the many benefits of PTO.

  • Work-life balance. The biggest and probably most well-known advantage of PTO is work-life balance, which contributes to health, wellbeing, lack of burnout, etc. It also encourages employees to take time away from work so they don’t miss out on activities at home. Employees who aren’t focused solely on work are better able to focus on work while at work.
  • Reduction in absenteeism. An employer that offers PTO to its employees decreases absenteeism. Research shows that employers who offer PTO have seen a 6% to 8% decrease in employees who miss work without giving notice. This saves an employer time and money, as they can plan for, instead of being surprised by, their absence.
  • Productivity. Employees who go without breaks for weeks or months can struggle to focus, are less motivated, and aren’t nearly as productive. PTO helps a company continue to be productive by giving an employee the necessary time to recharge mentally and physically.

Disadvantages of Offering Paid Time Off

Like every other benefit, there can be a downside to PTO.

  • Sick employees coming to work. One potential downside of PTO is that some employees see it as “vacation” time too precious to waste on a sick day,so they “suck it up” and come to work while they are sick. Other employees may become ill as well, not feel comfortable working around the sick employee, or feel like they, too, should come to work when they are sick. This is something that an employer should be aware of and look to balance. Having clear expectations with employees can help with this issue.
  • More time-off requests. Employees are more likely to take time off if PTO is available, as that is what it is intended for. However, this can also impact scheduling and staffing needs, ultimately affecting a company’s ability to operate well if not enough employees are working. One way to combat this is to require that vacation leave or personal time is requested a certain number of days in advance.
  • PTO payout. Some companies offer a PTO payout, in which an employee gets paid for any remaining earned PTO when they exit a company. While this is not a bad policy, this can be a large sum of money if you allow PTO to accumulate, or rollover, and the employee doesn’t use it.
  • PTO usage prior to termination. Some employees use all of their PTO when they know they will be leaving a job. For instance, they may request two weeks of PTO and quit at the end of that time. While this is fair usage, the employee ends up getting paid for an amount of time while no longer doing any kind of work for the employer.

Common Types of Paid Time Off

Companies offer a variety of types of PTO. Here are details about the most common. Less common types include bereavement, jury duty, military duty, and sabbaticals.

Vacation

The most basic form of PTO is vacation. Employees need the time to disconnect and recharge. Planning a trip and taking a break from work can be very beneficial for the employee and the employer.

Sick Leave

Some companies separate PTO and sick days into different banks of time; some do not. However you choose to do it, sick leave should be offered to employees so that they are encouraged to stay at home when they are sick, which benefits everyone.

Personal Time

Many companies offer personal time as distinct from vacation or sick leave.

Bereavement/Parental Leave

This type of leave allows employees to take time to care for family, whether that is caring for a newborn, aging parents, or someone who is ill. Many companies are required to provide this type of leave through the Family Medical Leave Act.

Different Types of PTO Policy

You can implement your PTO policy in a variety of ways,  and each of them has pros and cons. There are three common styles of PTO policies, and we’ll look at each. However, no matter how PTO is offered, how you divide it is also an important decision.

PTO Buckets

How many buckets does your PTO fall into? Is there one total number of PTO hours that is used for vacation, sick, personal, and every other sort of leave? Or is that time divided by purpose and tracked separately?

Advantages and disadvantages include:

  • If sick leave is folded into PTO, employees may prefer to come to work sick and preserve that time for vacation or other uses.
  • If sick leave is folded into PTO, employees with serious illness will lack time to take a vacation, which is also important to productivity and work/life balance.
  • Tracking PTO separately adds substantially to administrative time and complexity.

Unlimited PTO

Unlimited PTO is becoming more common, especially within the tech industry. With unlimited PTO, employees can take time off whenever they want, as often as they want. It offers more flexibility and encourages employees to take time off whenever it is needed. However, unlimited PTO can be a bit misleading, as employees might feel more inclined to take less time off as they are unsure what is an appropriate amount of time off. Employees with unlimited PTO may be afraid of looking lazy or uncommitted to the job. This leads to employees not taking time off, which affects their morale and health.

Accrual

The most common kind of PTO is the traditional accrual policy. The annual PTO given to an employee is divided by the number of pay periods in the year, so that it slowly accumulates, creating a total number of hours of PTO the employee has available to use.

This can be beneficial for the employees in that their PTO use is spread throughout the year. However, the employee might feel stymied by the slow accumulation and discouraged about having to wait to use their PTO. They might decide to wait until it has built up at the end of the year to use all of it at once, which may be challenging for the company.

Banked PTO

Here, the company grants a certain number of PTO days at the beginning of the year, creating a “bank” of time employees can use as needed, without waiting for it to accrue. It also creates a sense of trust and responsibility within a company, and it solves the dilemma in which employees save the PTO to use it all at once. However, it can cause problems if you offer a PTO payout; an employee may quit just past their anniversary date so they can get a PTO payout.

How to Craft Your Own Policy

A clearly written PTO policy in the company handbook is essential.

Gather Feedback

If you are implementing a new PTO policy, ask employees what is important to them and what would help them be the best employees possible.

Set parameters

Next, set clear parameters on the reasons someone can request PTO, what kind of PTO is offered, how many days in advance should PTO be requested, and the amount of PTO that is offered.

Employee Consent

Once a policy has been written and the guidelines have been set, it is sent to all employees. Usually, there is a written form for each employee to acknowledge their understanding of the company PTO policy (new hires, of course, do this with their receipt of the handbook).

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Questions You’ve Asked Us About Paid Time Off (PTO)

Do I have to pay PTO when an employee leaves?
No, it is not required to pay an employee all of their remaining PTO. Some companies do this as an added benefit for the employees when they leave, but it is not required. This policy should be included in the employee handbook.
Do I have to provide employees with PTO?
No, paid time off is not a required benefit. However, it can be hard to attract the best talent if some kind of PTO is not offered.
How can I keep track of employee’s PTO hours?
PTO can be tracked through many different Human Resources Information System or timeclock software. This avoids human error and reducer administrative time.
Do employees prefer PTO or vacation policies?
Employees generally prefer vacation and sick days to be separate so they don’t feel like their accrued vacation days are being wasted when they are sick. This also encourages them to use sick days and stay home when they are sick.
Tanner Pierce, PHR

Tanner has over 4 years of HR professional experience in various fields of HR. He has experience in hiring, recruiting, employment law, unemployment, onboarding, outboarding, and training to name a few. Most of his experience comes from working in the Professional Employer and Staffing Industries. He has a passion for putting people in the best position to succeed and really tries to understand the different backgrounds people come from.

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