Paid Time Off (PTO)

Managing paid time off is complex and—more often than not—time-consuming. In this guide, you’ll find answers to frequently asked PTO questions, learn the different types of PTO policies (ie: PTO banks, annual allotments, etc.) and discover how to find the best PTO tracking software for your organization. We also explain common PTO terminology throughout this guide to help you on your road to mastering this important HR topic.

What is PTO?

Paid Time Off: Often referred to as PTO, paid time off is personal time that employees take to spend out of the office (and not working) while still receiving pay for regular wages. PTO policies can be structured in many different ways depending on a given company’s size, structure, and industry.

How does PTO work?

PTO policies typically provide a pool of paid days employees can use for a variety of reasons. There are three main PTO strategies that employers use: accrual, allotment, and unlimited. PTO policies most often include national and floating holidays, paid vacation days, paid family leave, and paid sick leave.

→ Sign Up Now: How to Build (& Audit) a PTO Policy Course [Free SHRM & HRCI Credits]

Common PTO Terminology

Paid Time Off:
PTO is the 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. Often, 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.

PTO Banks:
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.

PTO Accrual:
Time off that an employee has earned over a given amount of time, typically over a certain number of hours, days, weeks, or months worked.

An employee earns one hour of paid time off for every 20 hours worked. After working 400 hours, the employee has 20 hours of accrued time off.

Annual Allotment:
Sometimes referred to as lump sum, allotment is a PTO approach in which employees are allotted a number of days per year that either expire or rollover 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.

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.

How Do Accrual and Allotment Strategies Compare?

It can be difficult to determine which PTO strategy might work best for your organization. Understanding which policy is right for you can have a huge impact on overall employee satisfaction. Your PTO strategy can affect your overall retention rates and your recruiting strategies. For more information on how accrual and allotment strategies compare, check out this article: Should Employers Use an Accrual Bank or Lump Sum PTO Strategy?

Unlimited PTO:
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. For more information, check out this article on the pros and cons of unlimited PTO.

An employee is permitted to take off as many days as needed, within reason. Neither the employer nor the employee track PTO hours or days.

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.

Floating Holidays:
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 for the birth or adoption of a child or health concerns. For more information, check out this article: How Paid Parental Leave Can Improve Retention.

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.

Paid Bereavement Leave:
Bereavement leave is time 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. For more information, check out this article: How to Write a Bereavement Leave Policy.

Jury Duty:
Many companies provide paid time off for employees to report for jury duty, as it is federally mandated. However, some employers provide unpaid time off instead.

What’s the Purpose of PTO?

In the modern 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 acts 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.

Are PTO Blackout Periods Legal?

Vacation blackouts are specific dates when employees cannot schedule time off due to an expected increase in volume or special events such as product releases or the holidays. PTO blackout periods are actually quite common in industries with seasonal businesses, such as retail and customer experience. For more information, check out this article: How to Manage PTO Staffing Strains.

Do I have to pay out PTO when an employee leaves?

What if an employee leaves before using all of their 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. That said, an employer would be required to pay out PTO if it promised to do so in an employment contract or operated in a state that regulated PTO payout.

Should organizations audit their PTO policies?

A PTO audit is an essential part of ongoing HR compliance. In some cases, conducting a time off policy audit may require a few small adjustments to accommodate an organization’s workforce. In others, such as the COVID pandemic, a PTO review could save your organization from financial ruin.

For example, if each of your employees decided to save their accrued time off and use it all at once during December, your company could lose an entire month of productivity. Likewise, what if your company has committed to paying out unused vacation days and the same situation occurs? And what if you’ve had to lay off teammates—does your company promise PTO payout?

An audit can help prevent these potential risks. By considering your company’s financial health and the benefits package that it offers, plus any federal or state PTO laws that may apply, HR can lead the charge towards meaningful PTO change—and a healthier organization.

For more information and a template, check out this article: How HR Can Remind Employees to Use PTO Benefits.

See if your state regulates PTO payout:

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Consider these important questions to ask when evaluating PTO payout laws in your state:

What pay rate do I use when calculating PTO payout?

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.

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 where it’s required.

For example, 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.

What is a PTO Tracking System?

A PTO Tracking System is an HR software solution used to streamline PTO administration. They 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 through 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, our all-in-one HRIS.

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 and 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 to mid-size 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 among vacation days, sick days, 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 type of time off you’d like to offer to employees.

Does the system offer employees self-service capabilities?

This is 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.

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