How Does PTO Work: The Ins and Outs of Paid Time Off

If your business is looking to hire new talent or retain long-term workers, implementing a PTO program may help swing the odds in your favor. While traditional models typically allocated holiday, vacation and sick days separately, modern PTO programs separate holidays from the equation and combine vacation and sick days under an inclusive umbrella.


Read on to learn more about just what is PTO and how paid time off can help your company maintain a satisfied workforce.


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What is PTO?

What does PTO stand for? PTO stands for paid time off. It’s an employees’ paid time off away from their job. Paid time off can refer to vacations, illnesses, holidays and personal days, but PTO days are different from personal, medical or family leave.


Some employers separate vacation and sick pay from PTO programs, while others combine all forms of paid time off into a single plan. These fringe benefit programs may structure the allotment of PTO days in a combination of ways, including by hours worked, seniority or an employee’s role within an organization.


How does PTO work?

PTO day allotment is called accrual, and employees may accrue paid time off in a variety of ways. Typically, employees who have more seniority or hold a higher position within a business have more PTO days than new hires or typical workers.


Some companies provide employees with a set amount of paid time off at the beginning of each calendar year, while others let them build and bank paid time off throughout the year, based on the number of hours worked. In many cases, employees earn a set amount of PTO hours per pay period.


When employees wish to use the PTO days they’ve accrued, they request paid time off from their direct manager or supervisor, usually through a form, email request or self-service online portal. Their superiors then forward that request to human resources, and the PTO days are deducted from the employee’s banked time.


New employees and PTO

Paid time off makes an attractive incentive for businesses to offer when they wish to recruit new workers, especially in tight labor markets. Some companies set PTO policies that require new hires to wait a certain amount of time before accruing or using paid time off. Others offer new employees the ability to earn PTO days immediately and use those benefits in a limited way as an incentive for joining their company. 


PTO and holidays

Some businesses include holidays in their paid time off programs and require employees to accumulate and use PTO days for holidays. However, this isn’t recommended.


If employees use paid time off for holidays or religious observation, employers risk accusations of discrimination. The best PTO policies allow employees the flexibility to use their paid time off as they see fit.


PTO, vacations and sick days

Vacation and sick days may be included in PTO plans or offered in separate programs. For some companies, a single plan for all types of time off is optimum because it requires less management and provides more flexibility.


For other organizations, separate plans may be more appropriate due to the tenure of employees or existing paid time off programs.


Advantages of PTO

PTO days that employees can use at any time provide more flexibility than traditional holiday, vacation and sick days. Paid time off shows workers that they’re valued as individuals and helps them better manage their work-life balance.


Providing PTO days protects employees’ privacy since they can use them for any reason without having to make excuses. Paid time off also benefits your business because employees who can take time off to deal with family and personal needs are typically happier with their employment situation.


That job satisfaction makes them less likely to look elsewhere and more likely to commit to helping your business grow and thrive. You can also use extra PTO time as part of employee incentive programs to reward workers who go above and beyond the call of duty.


Disadvantages of PTO

While PTO days generally improve employer/employee relations, there are some disadvantages to offering paid time off. For example, some companies with paid time off policies may provide less time off than they did under a traditional vacation and sick day program.


Likewise, PTO programs may see newer workers accruing paid time off at a slower pace than long-term employees. Some workers may abuse liberal PTO policies, while others may worry that using paid time off will hurt their chances for promotions. There’s also the possibility of some workers coming to work sick, so they don’t feel like they’re wasting their paid time off on illnesses.


Creating a PTO policy

Paid time off is an important part of a compensation package for job seekers. A good strategy for designing your PTO days policy is to research similar businesses and structure a competitive package.


Use the following steps as a loose guide for creating your paid time off policy:


  1. Learn the ins and outs of your state’s PTO laws, and use those laws as a guiding force as you shape your business’s paid time off policies.
  2. Choose how long employees must be on the job before they start accruing and using PTO days.
  3. Determine eligibility for paid time off if your business employs seasonal, part-time or contracted workers.
  4. Establish paid time off tiers based on factors, such as seniority.
  5. Decide whether to let employees roll accrued time off over from year to year.
  6. Set a time frame in which new workers begin accruing and using PTO days.
  7. Establish a cap on accrued PTO days if appropriate.
  8. Create guidelines for how employees can request PTO, including forms on employee self-service portals and the amount of notice workers must provide.
  9. Communicate your PTO policy to all workers through new hire packets and employee handbooks.

Legal considerations for PTO programs

While federal regulations don’t require companies to add PTO to their employee benefit packages, state laws vary, and sometimes there are local requirements businesses must follow. Be sure you understand all the legal factors involved before creating a PTO system for your company or making changes to existing paid time off policies.


Ensuring employees understand paid time off

When you hire someone new or change paid time off policies, you should communicate the terms of accruing and using PTO days to employees, so they understand the policy. Some things to include in new hire packets or employee handbook updates concerning paid time off include:


  • What does PTO stand for?
  • How does paid time off work?
  • How do employees accrue PTO days?
  • How do employees request paid time off?

FAQs about paid time off

If you need more information about paid time off, these frequently asked questions may provide the answers you seek about PTO days.


How is PTO used?

PTO lets workers take days off that they’ve accrued per employer guidelines for a variety of reasons. Many businesses use paid time off as a catch-all term for vacation and sick days, allowing employees to use the days they’ve banked, usually based upon the amount of time they’ve been on the job, at their own discretion. Businesses often use PTO days as a benefit incentive that helps them hire and retain reliable employees.


How many PTO days are normal?

Per the Bureau of Labor Statistics (BLS), the average employee receives roughly eight PTO vacation days and eight days of sick leave PTO after the first year of employment.


This average jumps to almost 12 vacation PTO days and almost 10 sick leave days after five years of service and goes up to almost 14 vacation PTO days and approximately 10 sick leave days after 10 years.


These numbers differ across industries, with professional, technical and clerical workers typically accruing more PTO time than blue-collar and service workers.


What happens if workers don’t use their PTO?

While no federal law requires companies to pay out banked PTO time to workers who are terminated or quit, many larger businesses do so. This is due to complex laws across states that sometimes vary widely. Small businesses in states with no requirements may choose whether to release accrued paid time off to employees at their discretion.


Whether you have a large or small business, it helps to clarify your company’s specific PTO days policy in employee handbooks and welcome packets, so workers know paid time off works.


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