Guide To Understanding How PTO Works

Updated July 31, 2023

Image description

A woman with one hand behind her back and the other hand under her chin. There's also a list with the title "PTO VS. Vacation" and the pros and cons:

PTO

Pros
• Flexibility
• Rest and rejuvenation
• Improved morale
• Employee retention

Cons
• Additional costs
• Workload
• PTO abuse
• Lack of coverage

Vacation

Pros
• Improved mental health
• Work-life balance
• Reduced employee turnover
• Increased job satisfaction

Cons
• Disruption of workflow
• Difficulty in scheduling
• Abuse of vacations
• Extended absence

Paid time off (PTO) is a benefit an employer provides their employees that allows them to receive payment for the time they take off work for vacation, personal days, sick time and holidays. A company's PTO policies establish the guidelines that determine when and how an employee can receive payment for time off work.

To have a thorough understanding of how your company's PTO policy works, you need to know the amount of paid time off your employer provides you, how you earn or accrue that time and the rules you have to follow to use it.

In this article, we discuss everything you need to know to help you understand how your company's PTO policies work.

Why is it important to understand your company's PTO?

It is important to understand how your company's PTO policy works because it helps ensure you are maximizing your employee benefits. Understanding how your company's PTO policies work helps you properly plan the time you take off work to create a healthy work-life balance.

You may need to use PTO to address the needs of your family, to heal or recover from an illness or injury or to take a vacation for rest and relaxation.

Knowing how your company's PTO policies work can also help you use your time at work more productively and improve your overall job performance. When you know what to expect from your company's PTO policies, you are better able to use your time at work focusing on the tasks and responsibilities that need your attention at work instead of focusing on finding time to address the things that need your attention outside of work.

Related: What Is PTO?

How does PTO work?

The way a company's PTO works varies depending on the structure the company uses for their PTO policies. A company's PTO policy structure typically determines the amount of paid time an employee can take off work and the guidelines by which the employer approves that time off. Companies have three different options to choose from when deciding how their PTO policies work: traditional paid time off systems, PTO bank systems and unlimited PTO systems.

Traditional paid time off systems

Traditional paid time off systems provide employees with a set number of days in which they can use PTO for a specific reason. The traditional paid time off system provides employees a specific number of days or hours they can use and breaks that time up into separate categories for vacation, sick days and personal leave. Many employers increase the amount of time an employee receives in each category as the employee's tenure with the company increases.

Traditional paid time off systems gives employees the least amount of flexibility in determining how they use their time off and require a great amount of administrative oversight from the employer. The employee usually has to request to take time off in advance, unless they are using a sick day, and their employer needs to approve the time they request off.

PTO bank systems

PTO bank systems combine all the days an employer would provide to an employee for vacation, personal leave, sick days and sometimes holidays into a pool of total paid time off hours. The PTO bank does not distinguish how the employee can use their available time. Instead, it shows only the total number of hours the employee has available to use.

Typically, employees earn a specific number of hours based on the amount of time they have been with the company and the number of hours they work. Employees can use time from their available hours for any reason they need or want to. Because of this, PTO bank systems make calculations for the employer easier and provide employees with more flexibility than traditional paid time off systems.

For example, an employer could use a PTO bank system to give each of their employees 120 hours of PTO instead of giving them two weeks of vacation, three sick days and two personal days under a traditional paid time off system.

The PTO bank system allows each of their employees to choose how many of their 120 hours they use toward each PTO type. So an employee who wanted to divide their hours equally for vacation, sick time and personal leave and an employee who wanted to use all 120 hours for vacation could both choose to do so.

Unlimited PTO systems

Unlimited PTO systems are results-driven systems for administering PTO in which the employer does not set a limit to the number of days or hours an employee can take off. Instead, these systems allow employees to take time off when they need to for any reason as long as their time off does not impact their work or disrupt the business.

Of the three PTO structure options, unlimited PTO systems give employees the greatest amount of flexibility in managing their time off and requires the least amount of administrative oversight from the employer.

Most employers who use unlimited PTO systems don't require their employees to track the time they take off, and the employee's manager can approve or deny the employee's time off based on their discretion.

Approval discussions between the employee and their manager about time off usually focus on the employee's ability to continue to maintain job performance and work output expectations with the time they are taking off.

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Types of PTO

While many people associate PTO with vacation or sick time, the definition of PTO can apply to any time an employee receives pay while not working. As a result, there are many types of PTO. A few of the most common PTO types include:

Vacation time
Sick time
Personal days
Bereavement leave
Paid holidays
Floating holidays
Parental leave
Jury duty
Community service

Vacation time

Vacation time is a pre-planned period of time that an employee takes away from work for rest, relaxation or recreation. The amount of consecutive time an employee takes off work for vacation typically is between a few days and up to two weeks. The employee usually requests this time off and schedules it with their employer well in advance and makes preparations prior to their vacation to ensure there is not a disruption to their work or the business while they are away.

Sick time

Sick time is a period in which an employee needs to stay home from work to recover from an illness or injury, seek medical treatment for themselves or care for a member of their family who is ill or injured. Most employees do not plan their sick time in advance because they cannot predict when they or a family member will become ill or injured.

There are certain situations however in which an employee can plan to use their sick time at a specific time for a specific purpose, such as when they are planning for an upcoming surgery.

Personal days

Personal days are days in which an employee takes off work for personal matters other than illness or vacation. Employees can usually use personal days at their discretion, and the time may or may not be pre-planned time off. Examples of reasons employees may use personal days include, but are not limited to, attending appointments, moving, taking a needed break to prevent burnout or for mental health and responding to family emergencies.

Bereavement leave

Bereavement leave is a period of time an employer allows an employee to take off work to grieve and cope with the death of an immediate family member. The employer has the discretion to decide who qualifies as an immediate family member, with most employers recognizing the following relatives of an employee as immediate family members:

Spouse
Children, including step-children and adopted children
Son-in-law or daughter-in-law
Parents or parents-in-law
Grandparents
Grandchildren
Brothers and sisters
Members of the employee's same household

An employer's bereavement leave policies typically establish a pre-determined amount of paid time an employee can take off work after the death of a family member, with some employers offering more flexibility in extending that time than others.

Paid holidays

Paid holidays are days in which a company offers its employees a paid day off to spend time with their family or to celebrate a publicly recognized holiday. Some companies remain open on paid holidays and give their employees the choice to work the holiday for double-pay, while other companies close for holidays. Companies can choose which holidays they offer as a paid day off, with many companies recognizing about 10 holidays per calendar year.

Floating holidays

A floating holiday is a day in which a company allows its employees to choose a paid holiday of their own. An employee can use floating holidays for publicly recognized holidays their company does not recognize as a paid holiday. Some companies also allow employees to use floating holidays for important days to the employee that are non-publicly recognized holidays, such as a birthday or anniversary.

Parental leave

Parental leave is the time an employee receives away from work with pay for the addition of a child to their family. Parental leave policies vary by company, with some companies offering employees more parental leave time than others and some companies being more lenient in reasons for approval of parental leave time than others.

Some companies offer maternity leave only to women who are pregnant or who have just given birth. Other companies also offer paternity leave to new fathers after the birth of their child. Some companies also approve parental leave for employees who adopt a child.

Jury duty

Jury duty is a responsibility U.S. citizens have to serve the country's judicial process. Many employers offer employees paid time off to respond to a summons from their federal or state court to appear for the jury selection process. Paid time off for jury duty varies based on the amount of time needed to complete your responsibilities.

Jury duty can require anywhere between one day and several months of time off work, depending on whether or not the attorneys and courts choose you to serve as a juror during the juror selection process and the amount of time needed to complete the trial.

Community service

Some employers allow their employees to take paid time off work to use that time to volunteer for community programs and non-profit organizations. Companies offer paid time off for community service to show their commitment to supporting and giving back to their area and to encouraging employees to take an active role in their area.