PTO (Paid Time Off)

What is PTO?

PTO or Paid Time Off is a type of earned paid leave policy that doesn’t categorize the reason for the leave. Traditional paid leave separates the type of leave by category. The categories include sick time, personal days, and vacation time.

For most companies, the PTO model provides each employee the same number of paid days away from work throughout the year. Employees accrue leave as they work their regular schedule. Accrued, earned leave is sometimes called a PTO bank. Some employers increase the amount of PTO or vacation days each year the employee stays with the company.

With PTO hours, the employee decides when they need a day off and does not need to give a reason for taking the time off. The employee can use the leave whether they are sick in bed or headed to the lake to go fishing. Some employers believe using undesignated PTO instead of categorized leave reduces sick leave abuse.

Employers and managers may still regulate the way employees use accrued PTO. For example, they can require advance notice and/or manager approval. Of course, in the case of a sudden illness, an employee would not be able to give advance notice.

Why offer PTO as an employee benefit?

  • Employees rank paid vacation as their second most-valued benefit after health insurance.
  • Employees who believe their organization encourages vacation report higher job satisfaction.
  • Companies that don’t have an absence management plan are losing an average of $775 per employee, per year.
  • A PTO benefit is critical during times of workplace disruption.
  • Generous PTO can increase employee satisfaction and engagement. Engaged employees avoid unnecessary absences, and work to make the business successful.

How can employers manage PTO?

Paid leave is an essential part of workforce management. Employers or Human Resources directors can use the following step-by-step process to manage PTO:

  1. Create and document a paid leave policy in the employee handbook
  2. Train managers and employees on the PTO approval system
  3. Track employee time with employee timekeeping software
  4. Calculate employee balances with PTO tracker software
  5. Allow for year-end rollover if applicable
  6. Adjust PTO plan for tenure if applicable
  7. Answer employee questions about their accruals and your PTO policy
  8. Notify employees of soon-to-expire earned leave and encourage them to take a vacation or PTO day(s).
  9. Understand how Family Medical Leave Act (FMLA) and Emergency Paid Sick Leave Act (EPSLA) affects PTO and track all types correctly

What is the average PTO provided by employers in the US?

The average paid time off benefit is ten (10) paid days off after one year of employment.

Does the Fair Labor Standards Act (FLSA) require employers to provide PTO to their employees?

No. The FLSA does not require employers to provide paid time off. The Family and Medical Leave Act (FMLA) however, requires employers to provide unpaid qualified leave (sick leave for the employee or leave to care for family members) as specified by the Act.

Do state laws affect PTO?

Some states consider paid leave an employee benefit. As such, if an employee with unused PTO hours quits, the employer is required to compensate the employee for the earned, unused PTO (also called accrued vacation time).

In 2022, at 24 states had a law that regulates how PTO is handled upon separation. Note that employers with an unlimited PTO policy generally aren’t under the same PTO payout obligations.

See also

Additional resources

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