What is PTO?

Paid time off (PTO) provides each employee with a pool of leave time that they can use for any reason. They don’t have to give a reason for being gone. This replaces separate sick leave, personal time and paid vacation days that companies traditionally offer. PTO usually gives employees roughly the same amount of time that they would get for the separate leave times combined.

PTO can be used for all types of leave, including:

• Vacation
• Sick days
• Parental leave
• Disability leave
• Holidays

PTO can be structured in different ways. Unlimited PTO is a policy that allows employees to choose how much time off they have as long as they can still get their work done. Accrued PTO is time off that employees earn based on how much they work. A third option is giving each employee a set amount of PTO at the beginning of the year.

What is paid vacation time?

Paid vacation time is usually part of a larger leave policy with time off segregated for different uses. You might set requirements for how each type of leave can be used. Sick leave might be allowed when the employee is ill, has a medical appointment or needs to care for a family member. Vacation can generally be used for time away from work for personal reasons or relaxation.

Just like PTO, you can decide how employees earn vacation leave. You might have an unlimited vacation policy, accrual based on hours worked or a pool of vacation time and other leave that gets replenished at the beginning of the year. Company policies typically specify how far in advance employees have to request vacation time.

Reasons to offer PTO

Some of the pros of offering PTO vs. vacation time include:

• Employee flexibility: Your employees don’t have to worry if they have enough of a certain type of leave to use. They can allocate their time off how they want. It can also be less stressful because they don’t have to justify why they’re going to be gone.
• Openness: If you use separate sick leave and vacation time, your employees might fib and say that they’re sick when they just want an extra day off. With PTO, it all comes from the same pool, so they don’t have to deceive you about the reason.
• Advanced planning: Since most people use their PTO as vacation time, they often plan ahead and give you notice that they’ll be gone. With separate leave types, if they decide to fib and use a sick day for vacation time, you won’t know about the absence until that day, which makes it more difficult to plan for coverage.
• Easier tracking: The person who tracks time off has an easier job when everything is under PTO. You don’t need to code leave under different categories since it’s all the same. You also don’t have to track down employees to find out why they’re going to be gone or to make sure it follows policies for different types of leave.
• Improved recruiting: The idea of more flexibility for time off can be attractive to prospective employees. Your PTO policy might encourage more people to apply, which gives you more choices when you need to hire new employees.

Reasons to offer paid vacation time

Traditional vacation time comes with some distinct benefits. Here are some reasons why you might choose paid vacation time instead of PTO:

• Fewer sick employees at work: If you use PTO, your employees might prefer to save their time for vacation instead of using it for sick leave. Employees might show up to work sick, a problem called presenteeism. When employees have dedicated sick time along with vacation time, they’re more likely to stay home and use those sick days. This can keep productivity higher and reduce the spread of illnesses in the office.
• Lower payouts: Each state creates laws regarding required leave types and whether or not you have to pay employees for unused leave when they quit or retire. If you use PTO, you might have to pay departing employees for all of the unused PTO, which can be a large amount if they save it. You generally don’t have to pay employees for unused sick or personal leave, which means that you’ll only have to pay for vacation time. This can save you money if an employee leaves.
• Potentially fewer days used: Having employees take breaks is a good thing because it gives them a mental boost. However, when employees receive PTO, they’re more likely to use all of their time off, which can mean more days out of the office. With separate vacation types, many employees don’t use all of their sick leave.
• Better planning: For some employees, having separate leave types is easier for planning. With PTO, if any employee uses up all of their time for vacation or personal use near the beginning of the year, they won’t have any reserves if they get sick or injured. This can increase employee stress and create a financial burden for them.

PTO vs. vacation

Which option wins in the PTO vs. vacation debate? Both options work for many businesses, but there are some considerations that can help you decide. Keep these things in mind:

• State leave requirements: Research the leave requirements in your state, including what you have to pay if an employee quits. If you have to pay an employee for all unused PTO, you could have a hefty payout if the employee accrues a large number of days.
• Capacity for tracking: Using separate types of leave for different purposes requires more paperwork and monitoring. If you’re handling this yourself or want to streamline HR tasks, using PTO might be easier due to simplified tracking.
• Employee health: Another consideration is overall employee health. If your employees and their families are generally healthy, PTO is often preferred because it gives them more potential for vacation. For employees with health issues, PTO can be less appealing because they’ll use a lot of their time for illnesses without much time left for vacation, which can hurt morale.
• Personal preference: Since there’s not a huge difference between the two options, the decision often comes down to what you prefer or what your employees prefer. If the idea of greater flexibility in using time off appeals to your employees, PTO could be a better fit that improves morale, or you might find that your staff prefers the traditional method with separate leave types.