What is PTO in the modern workplace? Once upon a time it was the norm for employers to offer separate paid time off benefits to employees, differentiating sick leave from personal days and paid vacation. Today, however, a growing number of organizations have moved to a more flexible paid time off (PTO) benefit that incorporates all policies into one all-inclusive plan.
With so many employees either working from home full-time or in a hybrid set-up, the line between work and home life has become increasingly blurry. And recruiting and hiring has become extremely competitive. So, making the right choices when it comes to creating a time off policy has never been more important. Finding a way to incentivize employees to take much-needed PTO time off can help prevent burnout and boost engagement long-term.
One common question is “Is PTO and vacation the same?” The answer isn’t always straightforward. In some instances, state law dictates what an employer can offer because there are legal obligations attached to it, such as:
- If an employer can have a “use it or lose it” policy
- If vacation time is considered to be earned wages
- If vacation wages must be paid out upon termination
- If an employer’s policy sets the rules for vacation and PTO
When considering PTO vs. vacation, it’s important for an employer to be clear on their PTO policy while staying within the law. Here are some key differences as well as of the pros and cons to consider before offering employees an all-in-one singular PTO policy.
Types of PTO Policies
Many employees wonder, “Is PTO the same as vacation?” While these terms are often used interchangeably by employees, they’re not actually the same thing. What is PTO in a work setting? PTO is any time an employee is getting paid while away from work—it’s more all-encompassing than “vacation.” Think of it like this: all vacation is PTO while not all PTO is vacation.
For those asking, “Is PTO paid?” the answer is yes. It’s right in the name: Paid Time Off. Some examples of PTO include parental leave, jury duty, sick leave, holiday pay, or disability leave. When examining vacation vs PTO, most companies in the U.S. follow one of four types of PTO policies:
1. Traditional PTO separates vacation days, sick leave, and personal days into distinct buckets, giving employees clear boundaries for each type of time off.
2. Accrual-based PTO allows employees to earn time off based on hours worked or length of service, much like a savings account.
3. The newer unlimited PTO model, favored by many tech companies and startups, removes caps on vacation days but often requires manager approval.
4. Consolidated or combined PTO bundles all types of leave into a single bank of days, giving employees more flexibility in how they use their time off, though this approach can sometimes lead to workers saving days for illness rather than taking actual vacations.
Each model has its merits – traditional policies offer clarity, accrual systems reward tenure, unlimited PTO can boost recruiting, and consolidated plans provide flexibility. The key is choosing a system that aligns with both company culture and workforce needs.
Advantages of a PTO Policy
A well-structured PTO policy does more than just give employees time away from work – it boosts morale, reduces burnout, and helps companies retain their best talent. Some advantages to PTO programs include:
- Increased flexibility for employees.
- Reduced incentive to lie about being sick or having a doctor’s appointment to use allocated sick days, resulting in a more honest and transparent employer/employee relationship.
- One type of time off to track for managers and HR, as opposed to separately tracking hours for vacation, sick, and personal days.
Research consistently shows that incorporating a PTO policy will result in employees taking more vacation time and fewer sick days. This benefits employers in two ways. First, employers typically receive more notice about scheduled vacations and can plan for adequate coverage. Second, employees return to work more refreshed and productive following vacation leave, which generally doesn’t happen if they’re using sick days.
PTO Accrual and Usage
PTO accrual refers to how employees earn their time off – typically accumulating hours based on their work schedule, often around one day per month or 4% of hours worked. Usage, on the other hand, is about how and when employees actually take their earned time off, subject to company policies, blackout dates, and approval processes.
The gap between these two aspects can be striking: even though employees might steadily accrue their time throughout the year, many end up cramming their usage into the last quarter or, worse, letting their earned time expire. This mismatch often stems from workplace culture, project demands, or simple poor planning, leading to the common phenomenon of “use-it-or-lose-it” rushes at year’s end.
Disadvantages of a PTO Policy
There are a few potential downsides (depending on how you look at it) to creating a PTO bank that HR professionals should keep in mind.
- Employees will most likely use all of their PTO whereas personal and/or sick days may be left unused.
- Employees tend to save all their PTO for vacations and come to work when they’re sick—now, more than ever, it’s crucial this isn’t the case.
- In some states, accrued (yet unused) PTO must be paid to the employee upon the last day of work, but unused sick/personal time doesn’t.
Is Unlimited PTO a Good Idea for Companies?
When there’s tough competition for talent like we’re experiencing today, business leaders may be tempted by the idea of offering unlimited PTO as a way to attract high-quality candidates. After all, what could be better than unlimited days off work, right? Well, despite how dreamy it sounds, the reality is that workers who are offered unlimited vacation time rarely take more than other employees.
If you are considering an unlimited PTO policy, you should remember a couple things. First, such a benefit isn’t a good fit for nonexempt employees whose paid time is governed by wage and hour laws and who are paid overtime for working more than 40 hours a week. Second, in states where an employer is required by law to pay an employee a monetary amount equivalent to the amount of unused vacation time upon their last day of work, it would be impossible to determine an “unused” amount of time.
Unlimited time off might also cause issues with the Family and Medical Leave Act (FMLA) which requires employers to allow available paid leave to run simultaneously with an employee’s FMLA leave. If there’s no limit to paid time off, does that mean an employee’s entire 12-week FMLA leave will be paid?
Time Away from Work is Good
Whatever sort of vacation, sick, or PTO policy you implement in the workplace, be sure to encourage your employees to use it. Create a culture that supports time off—make sure managers lead by example and take vacation days. Eliminate the guilt factor by showing a true interest in where employees travel (ask questions, look at photos). Perhaps even consider a floating holiday or pay your employees to go on vacation by offering a financial incentive to be used for flights, hotels, or food.
How Paycor Helps with Time Off Management
Stop wasting time with manual PTO approvals. Paycor’s Time Off Advisor streamlines the entire process by automating approvals based on your company’s policies, only alerting you when manual intervention is needed. Your employees can check their PTO balance, submit time off requests, and access company policies right from their phones. They can even handle other HR tasks like clocking in and viewing pay stubs—all in one place. This matters more than ever, considering 55% of U.S. workers don’t use their earned time off (U.S Travel Association). With automated tracking and easy access, your team can better manage their well-deserved time away.
Managing employee time and attendance is already difficult, and that’s without having to keep track of PTO and vacation time. Between tracking accruals, managing requests, ensuring coverage, and staying compliant with state laws, it’s enough to make any HR professional’s head spin.
If you’re ready to help your employees unplug, reduce burnout, and streamline business operations through automation, use Paycor Time and Attendance. Our solution helps you manage these complexities while ensuring your team gets the rest they need to stay productive and engaged.
You can take a tour here or watch a demo today!
