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What is PTO?

PTO is one of the most important, and highest-valued, employee benefits today. Every business needs to provide its employees with PTO. Any businesses that don’t offer PTO risks burning their employees out, if they don’t jump ship for a better job first.

But just what is PTO? What does PTO mean, why is it so important, and how does it work in a business?

Read on and we’ll explain everything.

What is PTO (Paid Time Off)?

PTO stands for Paid Time Off.

PTO means that an employee does not work, but still gets paid for their regular working hours. There is usually a certain limit to the amount of paid time off each person can take, and different types of PTO to cover different circumstances.

What’s the Difference Between PTO vs Vacation Time?

PTO is often used interchangeably with vacation time (or annual leave, holiday time in some parts of the world).

Technically speaking, they are a little different.

PTO refers to all forms of paid time off, including vacation, paid sick time, paid parental leave, and many more.

Vacation is just one form of PTO. Vacation time is time off given to an employee to use for any purpose they wish. They could travel, stay home and spend time with their family, play video games all day – it’s not important.

Other forms of PTO are generally time off work for a specific reason. You get sick leave because you’re sick, parental leave to care for your child, jury duty to serve on a jury, etc.

Different Types of PTO

As mentioned above, vacation is just one of many forms of PTO. PTO covers any absence which is paid, and these absences can be for a wide variety of reasons.

Here are some of the most common types of PTO:

  • Vacation (aka annual leave or holiday)
  • Sick leave
  • Parental leave (including maternity leave, paternity leave, adoption leave)
  • Compassionate leave/bereavement leave
  • Jury duty leave
  • Mental health leave
  • Personal days
  • Paid public holidays or national holidays
  • Time off in lieu
  • Religious leave

Any of these leave types come under the category of paid time off, assuming the worker is paid during their absence.

PTO vs Unpaid Time Off

Some leave types may be given as unpaid time off, rather than PTO.

As the name suggests, unpaid time off works the same as PTO, except the worker is not paid for their absence.

We’ll illustrate it with an example. Let’s say someone earns $1,000 per week ($200 per day). One week they take two days of PTO – thus working three days, and taking two days off.

They’ll still be paid $1,000 for that week – $600 for the three days worked, and $400 for their paid time off.

Now let’s say, another week, the worker takes three days of unpaid time off.

For that week, they’ll only be paid $400, for the two days they worked. The other three were unpaid, so they took home less money for that work week.

Unpaid time off, though without pay, is still usually an excused or acceptable absence. The company approves the employee to take time off from work, without penalty or punishment, but the worker must accept that they will earn less as a result.

Many of the leave types listed earlier may be given as unpaid time off rather than PTO in some companies. Whether or not an absence is to be paid depends first on the local laws regarding PTO, and second, on the company’s discretion.

How Does PTO Work?

So we know what PTO is, but how exactly does it work?

Do you just decide to stay home one day, and you’ll automatically get paid for your time off?

No. There’s typically a process and controls in place with PTO.

First, there’s usually a limit on the amount of PTO you can take, which is usually split into separate limits for different leave types.

As an example, a company might give their employees:

  • 15 days of paid vacation time per year
  • 10 paid sick days
  • 3 paid personal days

This might work as a PTO bank, where the employee starts the year with the full amount, and over the year they can redeem from their bank when they take time off.

Alternatively, PTO may accrue slowly over time, with the employee earning a certain amount each week or month (for example), at which time it becomes available for them to use.

Learn more about how PTO accrual works.

To take PTO, the worker will have to submit a time off request, to someone like their department manager, supervisor or to HR.

There may be certain rules in place for this, such as the request needing to be submitted a specific length of time before the leave (e.g. two weeks).

Once approved, the employee will be removed from the schedule for their leave days, and they will be allowed to take this time off work, with payroll compensating them for their time off.

Why is PTO Important?

PTO is important for a number of reasons.

For one, paid time off is one of the highest-valued benefits by employees today. More than 75% of workers would consider taking a lower-paying job if it offered more vacation time than the job that paid more.

The only benefits that scored higher were healthcare and flexible working hours.

PTO is good for you. Working hard for long periods of time without taking time off results in high levels of stress, burnout, and long-term health problems.

Conversely, studies have shown that regular vacations have numerous health benefits.

And this is just for vacation time – other forms of PTO are just as important. 

Paid sick leave, for example, lets workers take time off to recover faster from illnesses and injuries, helping them maintain better long-term health, and avoid spreading illnesses throughout the workplace.

Parental leave is vital for allowing new parents to bond with their children, giving them stability during one of the most important times of their lives.

In summary, companies that provide PTO have happier and healthier employees. These employees are likely to be more productive, and more likely to stay with the company instead of moving on to better opportunities.

Do Companies Need to Provide PTO?

Companies may or may not have to provide PTO for their employees, depending on the labor laws in their location.

In the United States, there is no federal right to paid time off of any kind (though there are some laws, like the FMLA and USERRA, which provide the right to unpaid time off).

Many individual states have their own laws regarding paid time off, though very few states provide paid vacation time as a legal right.

Internationally, most major countries do have paid time off as a legal requirement, but it varies from country to country.

Check with official government resources or a legal professional to understand what’s required in your area.

How Much PTO Should You Get?

It’s difficult to pinpoint the right amount of PTO.

The average amount of vacation time provided to workers in the US is 10 days per year, as per the US Bureau of Labor Statistics.

This rises to as much as 23 days per year for workers in large companies with 20+ years of experience.

Worldwide, some countries provide as much as 39 days of paid vacation plus paid public holidays combined, as data from the Center for Economic Policy and Research shows:

In terms of sick leave, US workers receive an average of 6-10 days of paid sick leave per year.

Comparably, employees in many European countries average more than 10 days of sick leave taken per year.

These figures are averages or legal minimums. It may be the norm for companies with competitive hiring markets to provide more PTO as a bargaining chip for job-seekers (and some offer even greater benefits, such as unlimited PTO).

How to Implement PTO in a Business

There are a few steps to take to start providing PTO for your employees, in order to make sure there’s minimum disruption caused to business operations.

You’ll want to set up an effective leave management system to ensure that things run smoothly in regards to handling PTO requests from employees, and dealing with their absence when their leave period arrives.

Here are the steps you need to follow if you want to start offering paid time off.

Create Your PTO Policy

First, set up a policy that outlines all the rules and requirements around PTO in your business.

This policy should include:

  • Different types of PTO offered in your business.
  • How much time off is provided for each form of PTO.
  • How PTO becomes available (whether it’s a PTO bank system or a PTO accrual system).
  • How PTO will be paid (e.g. whether it’s paid at the employee’s usual rate, and when it will be paid out).
  • Situations when PTO may be declined (e.g. if too many people apply for leave for the same period).
  • What happens to unused PTO when the person’s employment ends, or at the end of the leave year.
  • Any other relevant rules regarding PTO use.

Create Your Time Off Request Policy

You may also want a separate policy covering how PTO requests work.

Make it clear to employees how they can ask for time off, who they need to request time off from, and any other rules they need to follow, such as applying a certain length of time in advance.

Encourage Employees to Take Time Off

Once all the relevant PTO policies are set up and made available to employees, it’s important to actually encourage workers to take their time off.

Many people are afraid to take the paid time off that’s available to them, as they’re afraid that it will be held against them in a negative light.

However, it’s in the company’s best interest for employees to take ample amounts of time off, in order to be healthier and happier, and as a result, more productive.

Schedule regular checks to ensure that each employee is taking advantage of the PTO that’s been given to them, and build a culture where employees are not afraid to ask for a day off.

Manage Your PTO Workflow with a Leave Management Software

Managing all the administrative details with PTO can be time-consuming (not to mention dull and monotonous), so it’s a good idea to use a leave management software to automate as much of the process as possible.

Leave management apps automatically track approved leaves on a shared calendar, so it’s easy for everyone to know when someone is going on leave, avoiding confusion that leads to lost productivity or missed deadlines.

A tool like Flamingo is a great choice, as it’s affordable, very easy to set up and use, and integrates with Slack and MS Teams to reduce the need to switch between apps so often.

Try Flamingo for free here.

Final Thoughts on Paid Time Off

Paid time off is vital for all employees. Everyone needs time off from work now and then, personal time which they can use to build a positive work-life balance.

In some places, it’s not required by law, and companies in these areas may feel like they can save by not giving their employees paid time off.

This is a mistake.

PTO boosts job satisfaction, boosts employees morale, health and happiness, and helps you build a more productive and positive working culture.

These long-term benefits far outweigh the small financial gain you might save by limiting PTO.

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