Paid Time Off
What is PTO?
“Paid time off (PTO) is time that employees take away from the office while still getting paid regular wages. Paid time off policies can be structured in many different ways depending on a given company’s size, structure and industry. “
Common PTO Terminology
Paid Time Off (PTO):
Time that employees can take off of work while still getting paid regular wages. This does not include times in which an employee is working remotely or telecommuting. Typically, PTO policies combine vacation, sick, and personal days.
Unpaid Time Off:
Time off in which an employee is not compensated for the missed days. Types of unpaid time off may include a leave of absence, military leave, unpaid personal time off, vacation beyond paid vacation days, and medical leave.
A PTO strategy that bundles together multiple PTO types, most commonly sick leave and vacation time, rather than assigning a certain number of days for each type.
A PTO approach in which employees are allotted a number of days per year that either expire or roll over on a particular date. This date is typically January 1, or based on the employee’s hire date. Allotted PTO can be a flat annual amount for all employees or based on years of service.
Example: 10 days per year with the employee having the ability to roll over up to three days from one year to the next, with the anniversary date being the hire date.
A PTO approach in which employees accrue PTO, typically on a monthly or quarterly predetermined basis. This policy is not based on a fixed date and there are no rollover days; however, there is usually a positive limit of accrual dates, after which no more days can be accrued until some are used. Accrual PTO can be a flat amount or based on years of service. More employers are moving towards an Accrual Bank approach as it provides more flexibility for employees to plan for larger blocks of time off without having to account for rollover dates.
Example: 10 days per year, accruing monthly, up to a positive limit of 20 days. Once the employee hits those 20 days, they cannot accrue any more PTO days until some are taken.
A PTO approach in which employees may take as much or as little PTO as they desire. An unlimited PTO policy allows employees to utilize PTO at their own discretion. Learn more about the pros and cons of unlimited PTO.
Common PTO Types
National holidays or specified days off that an entire company observes. Employees cannot request time off during these dates as they are already declared days off.
Unlike a holiday that the entire company observes, employees can choose whether or not to take a floating holiday as a paid day off or leave in their bank as an additional PTO day in the future.
Paid Family Leave:
Leave for employees needing to take care of family members – most commonly in regards to health concerns.
Paid Sick Leave:
A benefit that allows employees to take time off due to health issues. Typically, employees will utilize sick leave for personal medical care.
Leave taken by an employee due to the death of another individual, most commonly a close relative. This paid time off is given so that the employee can grieve the loss of a loved one, attend a funeral, and/or take care of other post-death arrangements.
Many companies provide paid time off for employees to report for jury duty, as jury duty is federally mandated; however, some employers provide unpaid time off instead.
What’s the purpose of PTO?
In today’s recruitment market, employers must compete to hire and retain skilled talent. One way employers stay competitive in the recruitment market is to offer employees paid time off. A strong paid time off policy makes an employer more attractive to current and prospective talent, increasing the likelihood of hiring and retaining quality candidates. Employers also provide employees PTO as a way to combat employee burnout, increase productivity and boost morale.
Do I have to offer PTO?
Most employers are not required by federal law to offer paid time off in the United States. There are, however, two exceptions. Employers engaged in government contract work and federally-supported contract work falling under the McNamara O’Hara Service Contract Act (SCA) or Davis-Bacon and Related Acts (DBRA). These two act use the prevailing local standard for fringe benefits to determine if PTO needs to be offered. If the prevailing local standard is to offer PTO, then PTO must be offered.
If an employer offers paid leave, it is important to note that it must be done so in accordance with the standards of the U.S. Equal Employment Opportunity Commission (EEOC). The EEOC states that an organization’s PTO policy must not discriminate on the basis of race, color, religion, sex (including gender identity, sexual orientation, and pregnancy), national origin, age (40 or older), disability or genetic information. Employers, however, can segment PTO policies based on tenure, location, time commitment (i.e. part-time vs. full-time), etc.
Do I have to pay out PTO when an employee leaves?
In the United States, 52% of workers do not fully utilize the PTO days given to them by their employers, which leaves a floating balance of PTO days. What if an employee leaves before using all of his/her PTO days? Are employers responsible for paying out this balance?
There are no federal laws that require employers to pay out PTO when an employee leaves. The only times an employer would be required to pay out PTO would be if the employer promised to do so in an employment contract or operated in a state that regulated PTO payout.
Here are some questions to ask when evaluating PTO payout laws in your state:
How much unused PTO do I have to pay out?
Your state may require full payout, no payout or partial payout of unused PTO upon termination.
If I have remote employees working in a different state than my company headquarters, which state’s PTO payout laws apply?
An employer is only responsible for paying out PTO if the terminated employee resides in a state that requires it. For instance, consider an employer living and working from home in California and employed by a company headquartered in Tennessee. California requires employers to pay out unused PTO, however, Tennessee does not. Because the employee resides in California, California law would apply and the employer would be responsible for paying out PTO to the remote employee.
Some states require employers to pay out PTO at the employee’s rate of pay upon termination. Others allow employers to pay out PTO at the rate of pay at the time the PTO was accrued. Why does the pay rate matter? An employee may earn more money at the time of termination than they had at the time they accrued PTO, which can affect the amount an employee is owed.
What is a PTO tracking system?
We’ve defined PTO and reviewed common PTO questions, now let’s look at PTO tracking systems. A PTO tracking system is an HR software solution used to streamline PTO administration. PTO tracking systems are typically found in one of two forms: a standalone system or a feature within a complete HRIS.
Reasons to use a PTO tracking system
As the baby boomer generation nears retirement and the millennial generation rises the ranks of the workforce, more employers are looking for ways to move traditionally paper-based processes online. PTO management is no exception. PTO tracking systems simplify PTO by saving time, reducing paperwork and eliminating error. Looking for a system that suits the bill? Take a quick tour of BerniePortal using the video below.
What to look for in a PTO tracking system
Ready to find a PTO tracking solution for your organization? There are many different kinds of solutions out there for companies to take PTO tracking online.
Here are four questions to consider when searching for the best PTO software.
Do I need an all-in-one system or a point solution?
The first question when considering software for any HR need is whether your organization would benefit more from an all-in-one system or a point solution. An all-in-one HRIS manages the full scope of HR administration — from applicant tracking, to onboarding, to PTO and more. A standalone, or point solution, will typically administer just one piece of this HR ecosystem.
Why would you choose a point solution? If your organization has very unique or specific PTO needs, all-in-one systems may not have enough functionality. However, most small and mid-sized businesses find that all-in-one systems are more than robust enough to manage their PTO needs, and there are additional benefits associated with using one streamlined system across HR.
Can the system handle my company’s PTO approach?
There are two general approaches to PTO — annual allotment and accrual bank. Under an annual allotment approach, employees are given a specific number of days per year that either expire or rollover based on an annual date. The accrual bank approach allows employees to accrue PTO based on a schedule, such as monthly or quarterly. Be sure to ask whether any system you are considering can manage the approach your organization uses.
Can the system manage how you categorize days off?
Another point to consider is the categorization of PTO days your organization offers. Some businesses differentiate across vacation days, sick leave and holidays, to name a few, while others use an umbrella “PTO” label to categorize all types of paid leave. Make sure whichever system you consider can handle each time off type you’d like to offer to employees.
Do employees have the ability to self-service?
This one of the most important factors when it comes to reducing the administrative burden on the HR department. Be sure to determine whether employees can actually view their PTO balances and request time off directly within the system. Otherwise, the system may just be a “fancy filing cabinet” of information you already had. Platforms that allow for self-service make it easy for employees to request, and managers to approve time off in one system.
Don’t waste your time tracking your team’s time off. Learn more about BerniePortal’s PTO feature here.